Ohio Valley Banc Corp. (OVBC) boosts credit reserves as first-half 2026 profit slips
Ohio Valley Banc Corp. reported for the quarter and six months ended June 30, 2026 that total assets rose to $1.66 billion from $1.58 billion at year-end 2025, driven mainly by loan growth to $1.25 billion and higher interest-bearing deposits with banks.
Net interest income increased to $15.4 million for the quarter and $30.3 million year‑to‑date, but a substantially higher provision for credit losses reduced profitability. Quarterly net income declined to $2.9 million (EPS $0.62) from $4.2 million, and six‑month net income fell to $7.2 million (EPS $1.53) from $8.6 million.
The allowance for credit losses on loans increased to $16.6 million from $11.5 million, reflecting higher modeled and specific reserves, including collateral‑dependent credits. Deposits expanded to $1.41 billion, shareholders’ equity improved to $173.4 million, and the company paid $0.48 per share in dividends year‑to‑date while recognizing a $377 gain on Visa equity securities.
Positive
- Operating cash flow strengthened, with net cash provided by operating activities rising to $9.8 million for the first six months of 2026 from $5.0 million a year earlier, supporting liquidity and internal funding capacity.
- Deposits expanded to $1.41 billion at June 30, 2026 from $1.33 billion at December 31, 2025, providing a larger core funding base for the loan portfolio.
Negative
- Net income declined, with six‑month earnings falling to $7.2 million from $8.6 million, and quarterly net income down to $2.9 million from $4.2 million, pressured by higher credit loss provisions.
- Credit costs increased notably, as the allowance for credit losses on loans rose to $16.6 million from $11.5 million, driven in part by higher specific reserves on individually evaluated collateral‑dependent loans.
Filing Explained
At June 30, 2026, collateral-dependent loans carried a $6,561 thousand valuation allowance, with no related charge-offs recognized.
The June 30, 2026 Form 10-Q is an unaudited interim report that records a
The filing also reports
A Visa exchange offer closed on May 8, 2026: the company exchanged 954 Class B-1 shares for 238 Class B-3 shares and 274 Class C shares, recognized a gain, and carried the remaining portfolio; the B-3 shares have a zero cost basis.
Credit-quality balances at June 30 were
Key Figures
Total assets: $1,661,436 thousand
Total loans: $1,246,114 thousand
Allowance for credit losses on loans: $16,610 thousand
+5 more
8 metrics
Total assets
$1,661,436 thousand
Consolidated balance sheet at June 30, 2026
Total loans
$1,246,114 thousand
Gross loans at June 30, 2026
Allowance for credit losses on loans
$16,610 thousand
Allowance balance at June 30, 2026 versus $11,519 thousand at December 31, 2025
Six‑month net income
$7,224 thousand
Six months ended June 30, 2026 compared with $8,616 thousand in 2025
Six‑month EPS
$1.53 per share
Earnings per share for six months ended June 30, 2026
Total deposits
$1,408,428 thousand
Deposits at June 30, 2026 versus $1,329,667 thousand at December 31, 2025
Operating cash flow
$9,831 thousand
Net cash provided by operating activities for six months ended June 30, 2026
Nonaccrual loans
$17,172 thousand
Nonaccrual loans balance at June 30, 2026
Key Terms
allowance for credit losses, available for sale debt securities, nonaccrual loans, other comprehensive income, +1 more
5 terms
allowance for credit losses financial
"At June 30, 2026, there was $16,610 in the ACL related to loans"
Allowance for credit losses is a reserve set aside by a financial institution to cover potential losses from borrowers who may not repay their loans. It acts like a safety net, helping the institution prepare for loans that might turn sour. For investors, it signals how cautious the institution is about the quality of its loans and potential risks to its financial health.
available for sale debt securities financial
"Debt securities available for sale are reported at fair value"
Available-for-sale debt securities are bonds or other loan-like investments a company buys but does not plan to hold until they mature or trade frequently. They are marked to current market value on the balance sheet, with temporary gains or losses shown outside net income, so investors can see potential unrealized value swings — like a homeowner listing a house at today’s price while still deciding whether to sell, revealing how market moves affect worth without changing reported profits.
nonaccrual loans financial
"The following table presents the recorded investment of nonaccrual loans"
Nonaccrual loans are loans a lender has stopped counting toward interest income because the borrower is overdue or unlikely to pay; the lender only records cash payments received and may set aside extra funds to cover potential losses. For investors, a rising number or amount of nonaccrual loans signals weaker credit quality, lower future interest revenue and larger potential write-downs — similar to pausing expected subscription income when many customers stop paying.
other comprehensive income financial
"Total other comprehensive income (loss), net of tax"
Other comprehensive income is a section of a company’s financial statements that records gains and losses not shown in the regular profit-and-loss line, such as paper gains or losses on certain investments, pension plan adjustments, and changes from converting foreign operations. These items don’t represent cash earned or spent today but change a company’s reported net worth, like value swings in things stored in a closet rather than money in your wallet, and help investors spot hidden strengths or risks to long-term financial health.
Level 3 fair value measurements financial
"quantitative information about Level 3 fair value measurements"
FAQ
How did Ohio Valley Banc Corp. (OVBC) perform financially in the quarter ended June 30, 2026?
Ohio Valley Banc Corp. generated net income of $2.9 million, down from $4.2 million a year earlier. Quarterly net interest income rose to $15.4 million, but a higher provision for credit losses reduced overall profitability.
What were OVBC’s earnings per share for the first half of 2026?
For the six months ended June 30, 2026, OVBC reported earnings per share of $1.53, compared with $1.83 for the same period in 2025. Net income over that period was $7.2 million versus $8.6 million previously.
How have OVBC’s loans and deposits changed in 2026?
At June 30, 2026, OVBC’s total loans were $1.25 billion, up from $1.20 billion at December 31, 2025. Total deposits increased to $1.41 billion from $1.33 billion, expanding the bank’s interest‑earning asset base and core funding.
What is the status of OVBC’s allowance for credit losses on loans?
The allowance for credit losses on loans increased to $16.6 million at June 30, 2026 from $11.5 million at year‑end 2025. This reflects higher modeled expected losses and specific reserves on collateral‑dependent credits, including commercial and real estate loans.
How strong is OVBC’s liquidity and cash position as of June 30, 2026?
OVBC held $78.1 million in cash and cash equivalents at June 30, 2026, up from $45.9 million at year‑end 2025. Net cash provided by operating activities also increased to $9.8 million, supporting overall liquidity.
Did OVBC pay dividends to shareholders in the first half of 2026?
Yes. OVBC paid cash dividends totaling $0.48 per share during the six months ended June 30, 2026, compared with $0.45 per share in the same period of 2025, returning capital while maintaining shareholders’ equity growth.
What impact did equity securities have on OVBC’s 2026 results?
OVBC recorded unrealized gains of $377 thousand on equity securities in the first half of 2026, largely from a Visa share exchange. These gains increased noninterest income but are separate from core banking operations.
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United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2026
OR
For the transition period from ____________ to ____________
Commission file number 000-20914
(Exact name of registrant as specified in its charter)
| | |
| (State of Incorporation) | (I.R.S. Employer Identification No.) |
| | |
| (Address of principal executive offices) | (ZIP Code) |
(740 ) 446-2631
(Registrant’s telephone number, including area code)
_____________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | The |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | | | Accelerated filer ☐ | |
| | | | Smaller reporting company | |
| | | | Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of common shares, without par value, of the registrant outstanding as of August 12, 2026 was 4,711,001 .
1
OHIO VALLEY BANC CORP.
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PART I.
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FINANCIAL INFORMATION
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Item 1.
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Financial Statements (Unaudited)
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Consolidated Balance Sheets
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3
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Consolidated Statements of Income
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4
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Consolidated Statements of Comprehensive Income
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5
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Consolidated Statements of Changes in Shareholders’ Equity
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Condensed Consolidated Statements of Cash Flows
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7
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Notes to Unaudited Consolidated Financial Statements
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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45
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Item 4.
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Controls and Procedures
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PART II.
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OTHER INFORMATION
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Item 1.
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Legal Proceedings
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45
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Item 1A.
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Risk Factors
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45
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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Item 3.
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Defaults Upon Senior Securities
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46
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Item 4.
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Mine Safety Disclosures
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46
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Item 5.
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Other Information
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46
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Item 6.
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Exhibits
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47
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Signatures
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48
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2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OHIO VALLEY BANC CORP.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share and per share data)
| June 30, | |||||||
| 2026 | December 31, | ||||||
| (Unaudited) | 2025 | ||||||
| ASSETS | |||||||
| Cash and noninterest-bearing deposits with banks | $ | $ | |||||
| Interest-bearing deposits with banks | |||||||
| Total cash and cash equivalents | |||||||
| Debt securities available for sale | |||||||
| Debt securities held to maturity, net of allowance for credit losses of $ | |||||||
| Equity securities | |||||||
| Restricted investments in bank stocks | |||||||
| Total loans | |||||||
| Less: Allowance for credit losses | ( | ) | ( | ) | |||
| Net loans | |||||||
| Premises and equipment, net | |||||||
| Premises and equipment held for sale, net | |||||||
| Accrued interest receivable | |||||||
| Goodwill | |||||||
| Bank owned life insurance and annuity assets | |||||||
| Operating lease right-of-use asset, net | |||||||
| Deferred tax assets | |||||||
| Other assets | |||||||
| Total assets | $ | $ | |||||
| LIABILITIES | |||||||
| Noninterest-bearing deposits | $ | $ | |||||
| Interest-bearing deposits | |||||||
| Total deposits | |||||||
| Other borrowed funds | |||||||
| Subordinated debentures | |||||||
| Operating lease liability | |||||||
| Allowance for credit losses on off-balance sheet commitments | |||||||
| Other liabilities | |||||||
| Total liabilities | |||||||
| CONTINGENT LIABILITIES | - | - | |||||
| SHAREHOLDERS’ EQUITY | |||||||
| Common stock ($ | |||||||
| Additional paid-in capital | |||||||
| Retained earnings | |||||||
| Accumulated other comprehensive income (loss) | ( | ) | ( | ) | |||
| Treasury stock, at cost ( | ( | ) | ( | ) | |||
| Total shareholders’ equity | |||||||
| Total liabilities and shareholders’ equity | $ | $ |
See accompanying notes to consolidated financial statements
3
OHIO VALLEY BANC CORP.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except per share data)
| Three months ended | Six months ended | ||||||||||||||
| June 30, | June 30, | ||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||
| Interest and dividend income: | |||||||||||||||
| Loans, including fees | $ | $ | $ | $ | |||||||||||
| Securities | |||||||||||||||
| Taxable | |||||||||||||||
| Tax exempt | |||||||||||||||
| Dividends | |||||||||||||||
| Interest-bearing deposits with banks | |||||||||||||||
| Interest expense: | |||||||||||||||
| Deposits | |||||||||||||||
| Other borrowed funds | |||||||||||||||
| Subordinated debentures | |||||||||||||||
| Net interest income | |||||||||||||||
| Provision for (recovery of) credit losses | |||||||||||||||
| Net interest income after provision for credit losses | |||||||||||||||
| Noninterest income: | |||||||||||||||
| Service charges on deposit accounts | |||||||||||||||
| Trust fees | |||||||||||||||
| Income from bank owned life insurance and annuity assets | |||||||||||||||
| Mortgage banking income | |||||||||||||||
| Electronic refund check / deposit fees | |||||||||||||||
| Debit / credit card interchange income | |||||||||||||||
| Unrealized gains on equity securities | |||||||||||||||
| Tax preparation fees | |||||||||||||||
| Other | |||||||||||||||
| Noninterest expense: | |||||||||||||||
| Salaries and employee benefits | |||||||||||||||
| Occupancy | |||||||||||||||
| Furniture and equipment | |||||||||||||||
| Professional fees | |||||||||||||||
| Marketing expense | |||||||||||||||
| FDIC insurance | |||||||||||||||
| Data processing | |||||||||||||||
| Software | |||||||||||||||
| Other | |||||||||||||||
| Income before income taxes | |||||||||||||||
| Provision for income taxes | |||||||||||||||
| NET INCOME | $ | $ | $ | $ | |||||||||||
| Earnings per share | $ | $ | $ | $ | |||||||||||
See accompanying notes to consolidated financial statements
4
OHIO VALLEY BANC CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(dollars in thousands)
| Three months ended | Six months ended | ||||||||||||||
| June 30, | June 30, | ||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||
| Net Income | $ | $ | $ | $ | |||||||||||
| Other comprehensive income (loss): | |||||||||||||||
| Change in unrealized gain (loss) on available for sale debt securities | ( | ) | |||||||||||||
| Related tax (expense) benefit | ( | ) | ( | ) | ( | ) | |||||||||
| Total other comprehensive income (loss), net of tax | ( | ) | |||||||||||||
| Total comprehensive income | $ | $ | $ | $ | |||||||||||
See accompanying notes to consolidated financial statements
5
OHIO VALLEY BANC CORP.
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY (UNAUDITED)
(dollars in thousands, except share and per share data)
| Accumulated | |||||||||||||||||||||||
| Additional | Other | Total | |||||||||||||||||||||
| Common | Paid-In | Retained | Comprehensive | Treasury | Shareholders' | ||||||||||||||||||
| Quarter-to-date | Stock | Capital | Earnings | Income (Loss) | Stock | Equity | |||||||||||||||||
| Balance at April 1, 2026 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||
| Net income | |||||||||||||||||||||||
| Other comprehensive income (loss), net | |||||||||||||||||||||||
| Cash dividends, $ | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2026 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||
| Balance at April 1, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||
| Net income | |||||||||||||||||||||||
| Other comprehensive income (loss), net | |||||||||||||||||||||||
| Cash dividends, $ | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ |
| Accumulated | |||||||||||||||||||||||
| Additional | Other | Total | |||||||||||||||||||||
| Common | Paid-In | Retained | Comprehensive | Treasury | Shareholders' | ||||||||||||||||||
| Year-to-date | Stock | Capital | Earnings | Income (Loss) | Stock | Equity | |||||||||||||||||
| Balance at January 1, 2026 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||
| Net income | |||||||||||||||||||||||
| Other comprehensive income (loss), net | ( | ) | ( | ) | |||||||||||||||||||
| Cash dividends, $ | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2026 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||
| Balance at January 1, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||
| Net income | |||||||||||||||||||||||
| Other comprehensive income (loss), net | |||||||||||||||||||||||
| Cash dividends, $ | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ |
See accompanying notes to consolidated financial statements
6
OHIO VALLEY BANC CORP.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (UNAUDITED)
(dollars in thousands)
| Six months ended | |||||||
| June 30, | |||||||
| 2026 | 2025 | ||||||
| Net cash provided by operating activities: | $ | $ | |||||
| Investing activities: | |||||||
| Proceeds from maturities and paydowns of debt securities available for sale | |||||||
| Purchases of debt securities available for sale | ( | ) | ( | ) | |||
| Proceeds from calls and maturities of debt securities held to maturity | |||||||
| Net change in loans | ( | ) | ( | ) | |||
| Purchases of premises and equipment | ( | ) | ( | ) | |||
| Purchases of bank owned life insurance and annuity asset | ( | ) | |||||
| Withdrawals from bank owned life insurance and annuity asset | |||||||
| Net cash (used in) investing activities | ( | ) | ( | ) | |||
| Financing activities: | |||||||
| Change in deposits | |||||||
| Cash dividends | ( | ) | ( | ) | |||
| Repayment of Federal Home Loan Bank borrowings | ( | ) | ( | ) | |||
| Change in other short-term borrowings | ( | ) | |||||
| Net cash provided by (used in) financing activities | ( | ) | |||||
| Change in cash and cash equivalents | ( | ) | |||||
| Cash and cash equivalents at beginning of period | |||||||
| Cash and cash equivalents at end of period | $ | $ | |||||
| Supplemental disclosure: | |||||||
| Cash paid for interest | $ | $ | |||||
| Cash paid for income taxes | |||||||
| Operating lease liability arising from obtaining right-of-use asset | |||||||
| Proceeds from bank owned life insurance and annuity assets not settled | |||||||
See accompanying notes to consolidated financial statements
7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF
PRESENTATION: The accompanying consolidated financial statements include
the accounts of Ohio Valley Banc Corp. (“Ohio Valley”) and its wholly-owned
subsidiaries, The Ohio Valley Bank Company (the “Bank”), Loan Central, Inc., a
consumer finance company, and Ohio Valley Financial Services Agency, LLC, an
insurance agency. The Bank has one wholly-owned subsidiary, Ohio Valley REO,
LLC (“Ohio Valley REO”), an Ohio limited liability company, to which the Bank
transfers certain real estate acquired by the Bank through foreclosure for sale
by Ohio Valley REO. Ohio Valley and its subsidiaries are collectively referred
to as the “Company.” All material
intercompany accounts and transactions have been eliminated in consolidation.
These
interim financial statements are prepared by the Company without audit and
reflect all adjustments of a normal recurring nature which, in the opinion of
management, are necessary to present fairly the consolidated financial position
of the Company at June 30, 2026, and its results of operations and cash flows
for the periods presented. The results
of operations for the three and six months ended June 30, 2026 are not
necessarily indicative of the operating results to be anticipated for the full
fiscal year ending December 31, 2026.
The accompanying consolidated financial statements do not purport to
contain all the necessary financial disclosures required by U.S. generally
accepted accounting principles (“US GAAP”) that might otherwise be necessary in
the circumstances. The Annual Report of
the Company for the year ended December 31, 2025, filed with the SEC on March
13, 2026 (the “2025 Annual Report”), contains consolidated financial statements
and related notes which should be read in conjunction with the accompanying
consolidated financial statements.
USE OF ESTIMATES IN THE
PREPARATION OF FINANCIAL STATEMENTS:
The accounting and reporting policies followed by the Company conform to
US GAAP established by the Financial Accounting Standards Board (“FASB”). The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and the disclosures provided, and actual results
could differ.
INDUSTRY SEGMENT
INFORMATION: We conduct our operations
through a single business segment, banking, which derives
interest and noninterest income through our banking products and services and
investment securities. All of our income relates to our operations in the
United States.
Pursuant to Financial Accounting Standards
Codification 280, Segment Reporting, operating segments
represent components of an enterprise for which separate financial information
is available that is regularly evaluated by the chief operating decision makers
in determining how to allocate resources and assessing performance.
Our chief operating decision maker, which is our Chief
Executive Officer, evaluates interest and noninterest income streams and credit
losses from our various products and services, while expense activities,
including interest expense and noninterest expense, are managed, and financial
performance is evaluated, on a Company-wide basis. As a result, detailed
profitability information for each interest and noninterest income stream
is not used by our chief operating decision maker to allocate
resources or in assessing performance. Rather, our chief operating decision
maker uses consolidated net income to assess performance by comparing it to and
monitoring against budgeted and prior year results. This information is used to
manage resources to drive business and net income growth, including investment
in key strategic priorities, as well as determining our ability to return
capital to shareholders. Segment assets represent total assets on our
Consolidated Balance Sheets and segment net income represents net income on our
Consolidated Statements of Income.
NEW ACCOUNTING PRONOUNCEMENTS PENDING ADOPTION: In November 2024, the
FASB issued Accounting Standards Update (“ASU”) No. 2024-03, Disaggregation of Income Statement Expenses. ASU 2024-03 requires
additional disclosure of the nature of expenses included in the income
statement to be presented in a tabular format in the footnotes to the financial
statements. ASU 2024-03 is effective for annual periods beginning after
December 15, 2026, and interim periods within fiscal years beginning after
December 15, 2027. The amendments in ASU 2024-03 should be applied on a
prospective basis, although retrospective application is permitted. The
Company is currently evaluating the impact of adopting ASU 2024-03 on its
consolidated financial statements.
In November 2025, the FASB
issued ASU No. 2025‑08, Financial Instruments—Credit Losses (Topic
326): Purchased Loans. This update amends the guidance in Accounting
Standards Codification (“ASC”) Topic 326 to improve the accounting for acquired
loans. The amendments expand the population of acquired financial assets
subject to the “gross-up” approach to include certain loans acquired without
evidence of significant credit deterioration that meet the definition of
“purchased seasoned loans.” Under this approach, an allowance for expected
credit losses is recognized at the acquisition date as an adjustment to the
amortized cost basis of the asset, rather than through credit loss expense. The
amendments are intended to improve comparability and better reflect the
economics of acquired loans by eliminating the recognition of a Day 1 credit
loss expense for such assets. The amendments are effective for annual reporting
periods beginning after December 15, 2026, including interim periods within
those annual periods, and should be applied prospectively to loans acquired
after the adoption date. Early adoption is permitted. The Company is currently
evaluating the impact of adopting ASU 2025-08 on its consolidated financial
statements.
8
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In
December 2025, the FASB issued ASU No. 2025‑11, Interim Reporting (Topic
270): Narrow-Scope Improvements. This update amends the guidance in ASC
Topic 270 to improve the clarity and usability of interim reporting
requirements. The amendments are intended to enhance the navigability of
interim disclosure requirements and clarify the applicability of Topic 270. The
ASU provides a comprehensive list of disclosures required in interim periods
under US GAAP and introduces a disclosure principle requiring entities to
disclose events and changes that occur after the end of the most recent annual
reporting period that have a material impact on the entity. The amendments also
clarify the form and content of interim financial statements. The guidance is
not intended to change the fundamental nature of interim reporting or
significantly expand or reduce existing disclosure requirements. The amendments
are effective for interim reporting periods within annual reporting periods
beginning after December 15, 2027, for public business entities, and for
interim reporting periods within annual reporting periods beginning after
December 15, 2028, for all other entities. Early adoption is permitted. The
Company is currently evaluating the impact of adopting ASU 2025‑11 on its
consolidated financial statements.
In
December 2025, the FASB issued ASU No. 2025‑12, Codification
Improvements. This update is part of the FASB’s ongoing project to make
incremental improvements to US GAAP and includes amendments to correct errors,
clarify guidance, and improve consistency across various topics within the ASC.
The amendments in ASU 2025‑12 affect multiple areas of US GAAP, including, but
not limited to, earnings per share, lease accounting, transfers and servicing,
and equity method investments. The changes are generally intended to enhance
the clarity and operability of existing guidance and are not expected to have a
significant impact on accounting practice for most entities. The amendments are
effective for annual reporting periods beginning after December 15, 2026, and
interim periods within those annual periods. Early adoption is permitted. The
Company is currently evaluating the impact of adopting ASU 2025‑12 on its
consolidated financial statements.
DEBT SECURITIES: The Company classifies securities into held to maturity
(“HTM”) and available for sale (“AFS”) categories. HTM securities are those
which the Company has the positive intent and ability to hold to maturity and
are reported at amortized cost. Securities classified as AFS include securities
that could be sold for liquidity, investment management or similar reasons even
if there is not a present intention of such a sale. AFS securities are reported
at fair value, with unrealized gains or losses included in other comprehensive
income, net of tax.
Premium amortization is deducted
from, and discount accretion is added to, interest income on securities using
the level yield method without anticipating prepayments, except for
mortgage-backed securities where prepayments are anticipated. Gains and losses
are recognized upon the sale of specific identified securities on the completed
trade date.
EQUITY SECURITIES: The Company’s equity
securities are carried at fair value, with changes in fair value reported in
net income. All of the Company’s equity securities have readily determinable
fair values and are carried at fair value, with changes recognized in net
income.
ALLOWANCE FOR CREDIT LOSSES (“ACL”) - AFS SECURITIES: For AFS debt securities in an unrealized position, the
Company first assesses whether it intends to sell, or it is more likely than
not that it will be required to sell the security before recovery of its
amortized cost basis. If either of the criteria regarding intent or requirement
to sell is met, the security’s amortized cost basis is written down to fair
value through income. For debt securities AFS that do not meet the
aforementioned criteria, the Company evaluates whether the decline in fair
values has resulted from credit losses or other factors. In making this
assessment, management considers the extent to which fair value is less than
amortized cost, any changes to the rating of the security by a rating agency,
and adverse conditions specifically related to the security, among other
factors. If this assessment indicates that a credit loss exists, the present
value of cash flows expected to be collected from the security are compared to
the amortized cost basis of the security. If the present value of cash flows
expected to be collected is less than the amortized cost basis, a credit loss
exists and an ACL is recorded for the credit loss, limited by the amount that
the fair value is less than the amortized cost basis. Any impairment that has
not been recorded through an ACL is recognized in other comprehensive income.
Changes in the ACL are recorded
as credit loss expense (or reversal). Losses are charged against the allowance
when management believes the uncollectibility of an AFS security is confirmed
or when either of the criteria regarding intent or requirement to sell is met.
Management made the accounting
policy election to exclude accrued interest receivable from the estimate of
credit losses. Accrued interest receivable on AFS debt securities totaled $1,221
at June 30, 2026 and $1,330 at December 31, 2025.
Management classifies the AFS
portfolio into the following major security types: U.S. Government securities,
U.S. Government sponsored entity securities, and Agency mortgage-backed
residential securities. At June 30, 2026 and December 31, 2025, there was no
9
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ACL - HTM SECURITIES: Management measures expected credit losses on HTM
debt securities on a collective basis by major security type with each type
sharing similar risk characteristics and considers historical credit loss
information that is adjusted for current conditions and reasonable and
supportable forecasts. The ACL on securities HTM is a contra asset valuation
account that is deducted from the carrying amount of HTM securities to present
the net amount expected to be collected. HTM securities are charged off against
the ACL when deemed uncollectible. Adjustments to the ACL are reported in the
Company’s consolidated statements of income in the provision for credit losses.
Management classifies the HTM portfolio into two major security types:
Obligations of states and political subdivisions and Agency mortgage-backed
residential securities. Agency mortgage-backed residential securities consist
of only two
securities with balances that are not significant. With regard to obligations of states and political subdivisions, management considers (1) issuer bond ratings, (2) historical loss rates for given bond ratings, (3) the financial condition of the issuer, and (4) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities. At June 30, 2026, the ACL related to HTM debt securities was $1 no
securities with balances that are not significant. With regard to obligations of states and political subdivisions, management considers (1) issuer bond ratings, (2) historical loss rates for given bond ratings, (3) the financial condition of the issuer, and (4) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities. At June 30, 2026, the ACL related to HTM debt securities was $
Management made the accounting
policy election to exclude accrued interest receivable from the estimate of
credit losses. Accrued interest receivable on HTM debt securities totaled $22
at June 30, 2026 and $13 at December 31, 2025.
LOANS: Loans that
management has the intent and ability to hold for the foreseeable future or
until maturity or payoff are reported at the principal balance outstanding, net
of unearned interest, deferred loan fees and costs, and an ACL. Interest income
is reported on an accrual basis using the interest method and includes
amortization of net deferred loan fees and costs over the loan term using the
level yield method without anticipating prepayments. The amount of the
Company’s recorded investment is not materially different than the amount of
unpaid principal balance for loans.
Interest income is discontinued
and the loan moved to non-accrual status when full loan repayment is in doubt,
typically when the loan payments are past due 90 days or over unless the loan
is well-secured or in process of collection. Past due status is based on the
contractual terms of the loan. In all cases, loans are placed on nonaccrual or
charged-off at an earlier date if collection of principal or interest is
considered doubtful.
All interest accrued but not
received for loans placed on nonaccrual is reversed against interest income.
Interest received on such loans is accounted for on the cash-basis method until
qualifying for return to accrual. Loans are returned to accrual status when all
the principal and interest amounts contractually due are brought current and
future payments are reasonably assured.
The Bank also originates
long-term, fixed-rate mortgage loans, with the full intention of being sold to
the secondary market. These loans are considered held for sale during the
period of time after the principal has been advanced to the borrower by the Bank,
but before the Bank has been reimbursed by the Federal Home Loan Mortgage
Corporation, typically within a few business days. Loans sold to the secondary
market are carried at the lower of aggregate cost or fair value. As of June 30,
2026 and December 31, 2025, there were no
ACL – LOANS: The ACL
for loans is a contra asset valuation account that is deducted from the
amortized cost basis of loans to present the net amount expected to be
collected on the loans. Loans, or portions thereof, are charged off against the
ACL when they are deemed uncollectible. Expected recoveries do not exceed the
aggregate of amounts previously charged-off and expected to be charged-off. The
ACL is adjusted through the provision for credit losses and reduced by net
charge offs of loans.
The ACL is an estimate of
expected credit losses, measured over the contractual life of a loan, that
considers historical loss experience, current conditions and forecasts of
future economic conditions. Determination of an appropriate ACL is inherently subjective
and may have significant changes from period to period.
The methodology for determining
the ACL has two main components: evaluation of expected credit losses for
certain groups of loans that share similar risk characteristics and evaluation
of loans that do not share risk characteristics with other loans.
10
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The ACL is measured on a
collective (pool) basis when similar risk characteristics exist. The Company
has identified the following portfolio segments and measures the ACL using the
following methods:
| Portfolio Segment | Measurement Method | Loss Driver | ||
| Residential real estate | Cumulative Undiscounted Expected Loss | National Unemployment, National gross domestic product ("National GDP") | ||
| Commercial real estate: | ||||
| Owner-occupied | Cumulative Undiscounted Expected Loss | National Unemployment, National GDP | ||
| Nonowner-occupied | Cumulative Undiscounted Expected Loss | National Unemployment, National GDP | ||
| Construction | Cumulative Undiscounted Expected Loss | National Unemployment, National GDP | ||
| Commercial and industrial | Cumulative Undiscounted Expected Loss | National Unemployment, National GDP | ||
| Consumer: | ||||
| Automobile | Cumulative Undiscounted Expected Loss | National Unemployment | ||
| Home equity | Cumulative Undiscounted Expected Loss | National Unemployment | ||
| Other | Cumulative Undiscounted Expected Loss, Remaining Life Method | National Unemployment |
Historical credit loss
experience is the basis for the estimation of expected credit losses. We apply
historical loss rates to pools of loans with similar risk characteristics. In
defining historical loss rates and the prepayment rates and curtailment rates
used to determine the expected life of loans, the use of regional and national
peer data was used. After consideration of the historic loss calculation,
management applies qualitative adjustments to reflect the current conditions
and reasonable and supportable forecasts not already reflected in the
historical loss information at the balance sheet date. Our reasonable and
supportable forecast adjustment, referred to above as “Loss Driver”, is based
on the national unemployment rate and the National GDP forecast for the first year. For periods beyond our reasonable and supportable
forecast, we revert to historical loss rates utilizing a straight-line method
over a two-year reversion period. The qualitative adjustments for current conditions
are based upon changes in lending policies and practices, experience and
ability of lending staff, quality of the Company’s loan review system, value of
underlying collateral, the volume and severity of past due loans, the value of
underlying collateral for collateral dependent loans, the existence of and
changes in concentrations and other external factors. Each factor is assigned a
value to reflect improving, stable, or declining conditions based on
management’s best judgment using relevant information available at the time of
the evaluation. Expected credit losses are estimated over the contractual term
of the loans, adjusted for expected prepayments when appropriate. The
contractual term excludes expected extensions, renewals, and modifications
unless either of the following applies: management has a reasonable expectation
at the reporting date that a modification will be executed with an individual
borrower, or the extension of renewal options are included in the original or
modified contract at the reporting date and are not unconditionally cancellable
by the Company.
The Company has elected to
exclude accrued interest receivable from the measurement of its ACL. Accrued
interest receivable on loans totaled $4,194 at June 30, 2026 and $4,111 at
December 31, 2025. When a loan is placed on nonaccrual status, any outstanding
accrued interest is reversed against interest income.
Loans that do not share risk
characteristics are evaluated on an individual basis. Loans evaluated
individually are not also included in the collective evaluation. We evaluate
all loans that meet the following criteria: 1) when it is determined that foreclosure
is probable; 2) substandard, doubtful and nonperforming loans when repayment is
expected to be provided substantially through the operation or sale of the
collateral; 3) when it is determined by management that a loan does not share
similar risk characteristics with other loans. Specific reserves are
established based on the following three acceptable methods for measuring the
ACL: 1) the present value of expected future cash flows discounted at the
loan’s original effective interest rate; 2) the loan’s observable market price;
or 3) the fair value of the collateral when the loan is collateral dependent.
Our individual loan evaluations consist primarily of the fair value of
collateral method because most of our loans are collateral dependent. Collateral
values are discounted to consider disposition costs when appropriate. A
specific reserve is established or a charge-off is taken if the fair value of
the loan is less than the loan balance.
At June 30, 2026, there was $16,610
in the ACL related to loans, compared to $11,519 at December 31, 2025. This
resulted in loan related provision expense of $3,815 and $5,517 during the
three and six months ended June 30, 2026, compared to $1,033 and $1,509 during
the three and six months ended June 30, 2025, respectively.
The Company’s loan portfolio
segments have been identified as follows: Commercial and Industrial, Commercial
Real Estate, Residential Real Estate, and Consumer.
11
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Commercial and industrial: Portfolio segment consists of borrowings for commercial purposes to
individuals, corporations, partnerships, sole proprietorships, and other
business enterprises. Commercial and industrial loans are generally secured by
business assets such as equipment, accounts receivable, inventory, or any other
asset excluding real estate and generally made to finance capital expenditures
or operations. The Company’s risk exposure is related to deterioration in the
value of collateral securing the loan should foreclosure become necessary.
Generally, business assets used or produced in operations do not maintain their
value upon foreclosure, which may require the Company to write down the value
significantly to sell.
Commercial real estate: Portfolio segment consists of nonfarm, nonresidential
loans secured by owner-occupied and nonowner-occupied commercial real estate as
well as commercial construction loans. An owner-occupied loan relates to a
borrower-purchased building or space for which the repayment of principal is
dependent upon cash flows from the ongoing business operations conducted by the
party, or an affiliate of the party, who owns the property. Owner-occupied
loans that are dependent on cash flows from operations can be adversely
affected by current market conditions for their product or service. A nonowner-occupied
loan is a property loan for which the repayment of principal is dependent upon
rental income associated with the property or the subsequent sale of the
property. Nonowner-occupied loans that are dependent upon rental income are
primarily impacted by the level of interest rates associated with the debt and
to local economic conditions, which dictate occupancy rates and the amount of
rent charged. The increase in debt service due to higher interest rates may not
be able to be passed on to tenants. As part of the origination process, loan
interest rates and occupancy rates are stressed to determine the impact on the
borrower’s ability to maintain adequate debt service under different economic
conditions. Furthermore, the Company monitors the concentration in any one
industry and has established limits relative to capital. In addition, credit
quality trends are monitored by industry to determine if a change in the risk
exposure to a certain industry may warrant a change in our underwriting
standards. Commercial construction loans consist of borrowings to purchase and
develop raw land into 1-4 family residential properties. Construction loans are
extended to individuals as well as corporations for the construction of an
individual or multiple properties and are secured by raw land and the
subsequent improvements. Repayment of the loans to real estate developers is
dependent upon the sale of properties to third parties in a timely fashion upon
completion. Should there be delays in construction or a downturn in the market
for those properties, there may be significant erosion in value that may be
absorbed by the Company.
Residential real estate: Portfolio segment consists of loans to individuals for the
purchase of 1-4 family primary residences with repayment primarily through wage
or other income sources of the individual borrower. The Company’s loss exposure
to these loans is dependent on local market conditions for residential
properties as loan amounts are determined, in part, by the fair value of the
property at origination.
Consumer: Portfolio segment consists of loans to individuals secured
by automobiles, open-end home equity loans and other loans to individuals for
household, family, and other personal expenditures, both secured and unsecured.
These loans typically have maturities of six years or less with repayment
dependent on individual wages and income. The risk of loss on consumer loans is
elevated as the collateral securing these loans, if any, rapidly depreciate in
value or may be worthless and/or difficult to locate if repossession is
necessary.
ACL – OFF-BALANCE SHEET CREDIT EXPOSURES: The Company estimates expected credit losses over the
contractual period in which the Company is exposed to credit risk via a
contractual obligation to extend credit, unless that obligation is
unconditionally cancellable by the Company. The ACL on off-balance sheet credit
exposures is adjusted through credit loss expense. The estimate includes
consideration of the likelihood that funding will occur and an estimate of
expected credit losses on commitments expected to be funded over its estimated
life. At June 30, 2026, there was $731 in the ACL related to off-balance sheet
credit exposures, compared to $871 at December 31, 2025. This resulted in
corresponding provision expense recoveries of $60 and $140 during the three and
six months ended June 30, 2026, compared to $115 and $55 in provision expense
during the three and six months ended June 30, 2025, respectively.
EARNINGS PER SHARE:
Earnings per share is based on net income divided by the weighted average
number of common shares outstanding during the quarter. The weighted average
common shares outstanding were 4,711,001
12
NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The following is a description of the Company’s valuation methodologies used to measure and disclose the fair values of its financial assets and liabilities on a recurring or nonrecurring basis:
Securities: Debt
securities classified as AFS are measured at fair value on a recurring basis.
The fair values for securities are determined by quoted market prices, if
available (Level 1). For securities where quoted prices are not available, fair
values are calculated based on market prices of similar securities (Level 2).
For securities where quoted prices or market prices of similar securities are
not available, fair values are calculated using discounted cash flows or other
market indicators (Level 3). During times when trading is more liquid, broker
quotes are used (if available) to validate the model. Rating agency and
industry research reports as well as defaults and deferrals on individual
securities are reviewed and incorporated into the calculations.
Individually
Evaluated Collateral Dependent Loans: Loans with specific reserves based on
their fair value of collateral are measured on an as-needed, nonrecurring
basis. The fair value of individually evaluated collateral dependent loans with
specific allocations of the ACL is generally based on the fair value of
collateral, less costs to sell, based on recent real estate appraisals. These
appraisals may utilize a single valuation approach or a combination of
approaches including comparable sales and the income approach. Adjustments are
routinely made in the appraisal process by the independent appraisers to adjust
for differences between the comparable sales and income data available. Such
adjustments are usually significant and typically result in a Level 3
classification of the inputs for determining fair value. Non-real estate
collateral may be valued using an appraisal, net book value per the borrower’s
financial statements, or aging reports, adjusted or discounted based on
management’s historical knowledge, changes in market conditions from the time
of the valuation, and management’s expertise and knowledge of the client and
client’s business, resulting in a Level 3 fair value classification. In some
instances, fair value adjustments can be made based on a quoted price from an
observable input, such as a purchase agreement. Such adjustments would be
classified as a Level 2 classification. Individually evaluated collateral
dependent loans are evaluated on a quarterly basis for additional impairment
and adjusted accordingly.
Other Real Estate
Owned (“OREO”): The value of foreclosed assets is measured on a nonrecurring
basis. Assets acquired through or instead of loan foreclosure are initially
recorded at fair value less costs to sell when acquired, establishing a new
cost basis. These assets are subsequently accounted for at the lower of cost or
fair value less estimated costs to sell. Fair value is commonly based on recent
real estate appraisals. These appraisals may utilize a single valuation
approach or a combination of approaches including comparable sales and the
income approach. Adjustments are routinely made in the appraisal process by the
independent appraisers to adjust for differences between the comparable sales
and income data available. Such adjustments are usually significant and
typically result in a Level 3 classification of the inputs for determining fair
value. In some instances, fair value adjustments can be made based on a quoted
price from an observable input, such as a purchase agreement. Such adjustments
would be classified as a Level 2 classification.
Appraisals for both collateral-dependent loans and OREO are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of management reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with management’s own assumptions of fair value based on factors that include recent market data or industry-wide statistics.
On an as-needed basis, the Company reviews the fair value of collateral, taking into consideration current market data, as well as all selling costs that typically approximate 10 %.
Interest Rate Swap Agreements: The fair value of interest rate swap agreements is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves (Level 2).
13
NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Assets and Liabilities Measured on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are summarized below:
| Fair Value Measurements at June 30, 2026 Using | |||||||||||
| Quoted Prices in Active | Significant Other | Significant | |||||||||
| Markets for Identical Assets | Observable Inputs | Unobservable Inputs | |||||||||
| (Level 1) | (Level 2) | (Level 3) | |||||||||
| Assets: | |||||||||||
| U.S. Government securities | $ | $ | $ | ||||||||
| U.S. Government sponsored entity securities | |||||||||||
| Agency mortgage-backed securities, residential | |||||||||||
| Equity securities | |||||||||||
| Interest rate swap derivatives | |||||||||||
| Liabilities: | |||||||||||
| Interest rate swap derivatives | ( | ) | |||||||||
| Fair Value Measurements at December 31, 2025 Using | |||||||||||
| Quoted Prices in Active | Significant Other | Significant | |||||||||
| Markets for Identical Assets | Observable Inputs | Unobservable Inputs | |||||||||
| (Level 1) | (Level 2) | (Level 3) | |||||||||
| Assets: | |||||||||||
| U.S. Government securities | $ | $ | $ | ||||||||
| U.S. Government sponsored entity securities | |||||||||||
| Agency mortgage-backed securities, residential | |||||||||||
| Interest rate swap derivatives | |||||||||||
| Liabilities: | |||||||||||
| Interest rate swap derivatives | ( | ) | |||||||||
There were no transfers into or out of Level 3 during the periods ended June 30, 2026 or 2025.
Assets and Liabilities Measured on a Nonrecurring Basis
There were no
| Fair Value Measurements at June 30, 2026 Using | |||||||||||
| Quoted Prices in Active | Significant Other | Significant | |||||||||
| Markets for Identical Assets | Observable Inputs | Unobservable Inputs | |||||||||
| (Level 1) | (Level 2) | (Level 3) | |||||||||
| Assets: | |||||||||||
| Individually evaluated collateral dependent loans: | |||||||||||
| Residential real estate | $ | $ | $ | ||||||||
| Commercial real estate: | |||||||||||
| Nonowner-occupied | |||||||||||
| Commercial and industrial | |||||||||||
At June 30, 2026, the recorded
investment of individually evaluated collateral dependent loans measured for
impairment using the fair value of collateral totaled $11,990 , with a
corresponding valuation allowance of $6,561 , resulting in an increase of $4,823
and $6,561 in provision expense during the three and six months ended June 30,
2026, with no corresponding charge-offs recognized. This is compared to an
increase of $42
14
NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
There were no The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2026:
| June 30, 2026 | |||||||||||||||
| Fair | Valuation | Unobservable | |||||||||||||
| Value | Technique(s) | Input(s) | Range | Weighted Average | |||||||||||
| Individually evaluated collateral dependent loans: | |||||||||||||||
| Residential real estate | $ | Sales approach | Adjustment to comparables | % | |||||||||||
| Commercial real estate: | |||||||||||||||
| Nonowner-occupied | Income approach | Capitalization rate | % | % | |||||||||||
| Commercial and industrial | Sales approach | Adjustment to comparables | % |
The carrying amounts and estimated fair values of financial instruments at June 30, 2026 and December 31, 2025 are as follows:
| Carrying | Fair Value Measurements at June 30, 2026 Using | ||||||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
| Financial Assets: | |||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | ||||||||||||||
| Debt securities available for sale | |||||||||||||||||||
| Debt securities held to maturity | |||||||||||||||||||
| Equity securities | |||||||||||||||||||
| Loans, net | |||||||||||||||||||
| Interest rate swap derivatives | |||||||||||||||||||
| Accrued interest receivable | |||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||
| Deposits | |||||||||||||||||||
| Other borrowed funds | |||||||||||||||||||
| Subordinated debentures | |||||||||||||||||||
| Interest rate swap derivatives | |||||||||||||||||||
| Accrued interest payable | |||||||||||||||||||
| Carrying | Fair Value Measurements at December 31, 2025 Using | ||||||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
| Financial Assets: | |||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | ||||||||||||||
| Securities available for sale | |||||||||||||||||||
| Securities held to maturity | |||||||||||||||||||
| Loans, net | |||||||||||||||||||
| Interest rate swap derivatives | |||||||||||||||||||
| Accrued interest receivable | |||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||
| Deposits | |||||||||||||||||||
| Other borrowed funds | |||||||||||||||||||
| Subordinated debentures | |||||||||||||||||||
| Interest rate swap derivatives | |||||||||||||||||||
| Accrued interest payable | |||||||||||||||||||
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
15
NOTE 3 – SECURITIES
The following table summarizes the amortized cost and fair value of securities AFS and securities HTM at June 30, 2026 and December 31, 2025 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses:
| Securities Available for Sale | Amortized | Gross Unrealized | Gross Unrealized | Estimated | |||||||||||
| Cost | Gains | Losses | Fair Value | ||||||||||||
| June 30, 2026 | |||||||||||||||
| U.S. Government securities | $ | $ | $ | ( | ) | $ | |||||||||
| U.S. Government sponsored entity securities | ( | ) | |||||||||||||
| Agency mortgage-backed securities, residential | ( | ) | |||||||||||||
| Total securities | $ | $ | $ | ( | ) | $ | |||||||||
| December 31, 2025 | |||||||||||||||
| U.S. Government securities | $ | $ | $ | ( | ) | $ | |||||||||
| U.S. Government sponsored entity securities | ( | ) | |||||||||||||
| Agency mortgage-backed securities, residential | ( | ) | |||||||||||||
| Total securities | $ | $ | $ | ( | ) | $ |
| Securities Held to Maturity | Amortized | Gross Unrecognized | Gross Unrecognized | Estimated | Allowance for | ||||||||||||||
| Cost | Gains | Losses | Fair Value | Credit Losses | |||||||||||||||
| June 30, 2026 | |||||||||||||||||||
| Obligations of states and political subdivisions | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||
| Total securities | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||
| December 31, 2025 | |||||||||||||||||||
| Obligations of states and political subdivisions | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||
| Total securities | $ | $ | $ | ( | ) | $ | $ | ( | ) |
The amortized cost and estimated fair value of debt securities at June 30, 2026, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers may have the right to call or prepay the debt obligations prior to their contractual maturities. Securities not due at a single maturity are shown separately.
| Available for Sale | Held to Maturity | ||||||||||||||
| Amortized | Estimated | Amortized | Estimated | ||||||||||||
| Debt Securities: | Cost | Fair Value | Cost | Fair Value | |||||||||||
| Due in one year or less | $ | $ | $ | $ | |||||||||||
| Due in over one to five years | |||||||||||||||
| Due in over five to ten years | |||||||||||||||
| Due after ten years | |||||||||||||||
| Agency mortgage-backed securities, residential | |||||||||||||||
| Total debt securities | $ | $ | $ | $ | |||||||||||
There were no
Debt
securities with a carrying value of approximately $175,647 at June 30, 2026 and $195,245 at December
31, 2025,
respectively, were pledged to secure public deposits, repurchase agreements,
and for other purposes required or permitted by law.
16
NOTE 3 – SECURITIES (Continued)
The following table summarizes debt securities AFS in an unrealized loss position for which an ACL losses has not been recorded at June 30, 2026 and December 31, 2025, aggregated by major security type and length of time in a continuous unrealized loss position:
| June 30, 2026 | Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||
| Unrealized | Unrealized | Unrealized | |||||||||||||||||||||
| Fair Value | Loss | Fair Value | Loss | Fair Value | Loss | ||||||||||||||||||
| Securities Available for Sale | |||||||||||||||||||||||
| U.S. Government securities | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||
| U.S. Government sponsored entity securities | ( | ) | ( | ) | |||||||||||||||||||
| Agency mortgage-backed securities, residential | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Total available for sale | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||
| December 31, 2025 | Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||
| Unrealized | Unrealized | Unrealized | |||||||||||||||||||||
| Fair Value | Loss | Fair Value | Loss | Fair Value | Loss | ||||||||||||||||||
| Securities Available for Sale | |||||||||||||||||||||||
| U.S. Government securities | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||
| U.S. Government sponsored entity securities | ( | ) | ( | ) | |||||||||||||||||||
| Agency mortgage-backed securities, residential | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Total available for sale | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||
Management evaluates AFS
debt securities in unrealized positions to determine whether impairment is due
to credit-related factors. Consideration is given to (1) the extent to which
the fair value is less than cost, (2) the financial condition and near-term
prospects of the issuer, and (3) the intent and ability of the Company to
retain its investment in the security for a period of time sufficient to allow
for any anticipated recovery in fair value.
At June
30, the Company had 68 AFS debt
securities in an unrealized position without an ACL, of which 10 were from U.S.
Government securities, 2 were from U.S. Government sponsored entity securities, and 56 were from
Agency mortgage-backed residential securities. Comparatively at December
31, 2025, the Company had 53 AFS debt securities in an
unrealized position without an ACL, of which 3 were from U.S. Government securities, 2 were from U.S. Government sponsored entity securities, and 48 were from Agency mortgage-backed residential securities. Management
does not have the intent to sell any of these securities and believes that it
is more likely than not that the Company will not have to sell any such
securities before a recovery of cost. The fair value is expected to recover as
the securities approach their maturity date or repricing date or if market
yields for such investments decline. Accordingly, as of June
30, 2026
and December 31, 2025, management
believes that the unrealized losses detailed in the previous table are due to
noncredit-related factors, including changes in interest rates and other market
conditions, and, therefore, the Company
carried no ACL on AFS debt securities at June 30, 2026 and December 31, 2025.
17
NOTE 3 – SECURITIES (Continued)
The following table presents the activity in the ACL for HTM debt securities:
| Six months ended | Six months ended | |||||||
| Held to Maturity Debt Securities | June 30, 2026 | June 30, 2025 | ||||||
| Allowance for credit losses: | ||||||||
| Beginning balance | $ | $ | ||||||
| Provision for (recovery of) credit loss expense | ||||||||
| Allowance for credit losses ending balance | $ | $ |
The Company’s HTM securities consist of
obligations of states and political subdivisions. The ACL on HTM securities is
estimated at each measurement date on a collective basis by major security
type. Risk factors such as issuer bond
ratings, historical loss rates, financial condition of issuer, and timely
principal and interest payments of issuer were evaluated to determine if a
credit reserve was required within the portfolio. At June
30, 2026, there were no past due principal and interest payments related to HTM
securities. During the second quarter of 2026 and 2025, the cumulative loss
rate remained at 0.02 no
The Company’s equity securities portfolio is
comprised of common stock with readily determinable fair values. At December
31, 2025, this portfolio consisted of 954 shares of Visa Inc. (“Visa”) Class
B-1 common stock that were not marketable and carried at a $0 cost basis. On
April 13, 2026, Visa announced the commencement of a public offering to permit
the exchange of Class B-1 common stock for a combination of shares of Class B-3
common stock and Class C common stock. On May 8, 2026, the public exchange offer
closed, and in exchange for its 954 shares of Visa Class B-1 common stock, the
Company received 238 shares of Visa Class B-3 common stock and 274 shares of
Visa Class C common stock. As a result of the exchange offer, the Company
marked its Class C common stock to fair value and recorded a $377 gain in net
income based on the conversion privilege of Class C common stock and the
closing price of Visa Class A common stock. The $377 gain included $1 in
fractional shares that were converted to cash proceeds, which resulted in a
carrying value of $376 in the Company’s equity securities portfolio at June 30,
2026. The Company’s Visa Class B-3 common stock will be carried at a $0 cost
basis. As a result of the Visa exchange offer, net gains recognized during both
the three and six months ended June 30, 2026 on equity securities still held at
June 30, 2026 were $377 no no
NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans are comprised of the following:
| June 30, | December 31, | ||||||
| 2026 | 2025 | ||||||
| Residential real estate | $ | $ | |||||
| Commercial real estate: | |||||||
| Owner-occupied | |||||||
| Nonowner-occupied | |||||||
| Construction | |||||||
| Commercial and industrial | |||||||
| Consumer: | |||||||
| Automobile | |||||||
| Home equity | |||||||
| Other | |||||||
| Less: Allowance for credit losses | ( | ) | ( | ) | |||
| Loans, net | $ | $ |
At June 30, 2026 and December 31, 2025, net
deferred loan origination fees were $596 and $357 ,
respectively. At June 30, 2026 and December 31, 2025, net
unaccreted loan purchase discounts were $897 and
$833 ,
respectively.
18
NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)
The following table presents the recorded investment of nonaccrual loans and loans past due 90 days or more and still accruing by class of loans as of June 30, 2026 and December 31, 2025:
| Loans Past Due | Nonaccrual | Nonaccrual | Total | ||||||||||||
| 90 Days And | Loans With No | Loans With an | Nonaccrual | ||||||||||||
| June 30, 2026 | Still Accruing | ACL | ACL | Loans | |||||||||||
| Residential real estate | $ | $ | $ | $ | |||||||||||
| Commercial real estate: | |||||||||||||||
| Owner-occupied | |||||||||||||||
| Nonowner-occupied | |||||||||||||||
| Construction | |||||||||||||||
| Commercial and industrial | |||||||||||||||
| Consumer: | |||||||||||||||
| Automobile | |||||||||||||||
| Home equity | |||||||||||||||
| Other | |||||||||||||||
| Total | $ | $ | $ | $ |
| Loans Past Due | Nonaccrual | Nonaccrual | Total | ||||||||||||
| 90 Days And | Loans With No | Loans With an | Nonaccrual | ||||||||||||
| December 31, 2025 | Still Accruing | ACL | ACL | Loans | |||||||||||
| Residential real estate | $ | $ | $ | $ | |||||||||||
| Commercial real estate: | |||||||||||||||
| Owner-occupied | |||||||||||||||
| Nonowner-occupied | |||||||||||||||
| Construction | |||||||||||||||
| Commercial and industrial | |||||||||||||||
| Consumer: | |||||||||||||||
| Automobile | |||||||||||||||
| Home equity | |||||||||||||||
| Other | |||||||||||||||
| Total | $ | $ | $ | $ |
The Company recognized $69 and $77 of interest income in nonaccrual
loans during the three and six months ended June 30, 2026, respectively. This is compared to $28 and $46 of interest income in
nonaccrual loans during the three and six months ended June 30, 2025, respectively
19
NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)
The following table presents the aging of the recorded investment of past due loans by class of loans as of June 30, 2026 and December 31, 2025:
| 30-59 | 60-89 | 90 Days | |||||||||||||||||||||
| Days | Days | Or More | Total | Loans Not | |||||||||||||||||||
| June 30, 2026 | Past Due | Past Due | Past Due | Past Due | Past Due | Total | |||||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||
| Owner-occupied | |||||||||||||||||||||||
| Nonowner-occupied | |||||||||||||||||||||||
| Construction | |||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||
| Automobile | |||||||||||||||||||||||
| Home equity | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ |
| 30-59 | 60-89 | 90 Days | |||||||||||||||||||||
| Days | Days | Or More | Total | Loans Not | |||||||||||||||||||
| December 31, 2025 | Past Due | Past Due | Past Due | Past Due | Past Due | Total | |||||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||
| Owner-occupied | |||||||||||||||||||||||
| Nonowner-occupied | |||||||||||||||||||||||
| Construction | |||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||
| Consumer: | - | ||||||||||||||||||||||
| Automobile | |||||||||||||||||||||||
| Home equity | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ |
Credit Quality Indicators:
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. These risk categories are represented by a loan grading scale from 1 through 11. The Company analyzes loans individually with a higher credit risk rating and groups these loans into categories called “criticized” and ”classified” assets. The Company considers its criticized assets to be loans that are graded 8 and its classified assets to be loans that are graded 9 through 11. The Company’s risk categories are reviewed at least annually on loans that have aggregate borrowing amounts that meet or exceed $1,000 .
The Company uses the following definitions for its criticized loan risk ratings:
Special Mention. Loans classified as “special mention” are graded 8 and indicate considerable risk due to deterioration of repayment (in the earliest stages) due to potential weak primary repayment source, or payment delinquency. These loans will be under constant supervision, are not classified and do not expose the institution to sufficient risks to warrant classification. These deficiencies should be correctable within the normal course of business, although significant changes in company structure or policy may be necessary to correct the deficiencies. These loans are considered bankable assets with no apparent loss of principal or interest envisioned. The perceived risk in continued lending is considered to have increased beyond the level where such loans would normally be granted.
20
NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)
The Company uses the following definitions for its classified loan risk ratings:
Substandard. Loans classified as “substandard” are graded 9 and represent very high risk, serious delinquency, nonaccrual, or unacceptable credit. Repayment through the primary source of repayment is in jeopardy due to the existence of one or more well-defined weaknesses, and the collateral pledged may inadequately protect collection of the loans. Loss of principal is not likely if weaknesses are corrected, although financial statements normally reveal significant weakness. Loans are still considered collectible, although loss of principal is more likely than with special mention loans. Collateral liquidation is considered likely to satisfy debt.
Doubtful. Loans classified as “doubtful” are graded 10 and display a high probability of loss, although the amount of actual loss at the time of classification is undetermined. This classification should be temporary until such time that actual loss can be identified, or improvements are made to reduce the seriousness of the classification. These loans exhibit all substandard characteristics with the addition that weaknesses make collection or liquidation in full highly questionable and improbable. This classification consists of loans where the possibility of loss is high after collateral liquidation based upon existing facts, market conditions, and value. Loss is deferred until certain important and reasonable specific pending factors that may strengthen the credit can be more accurately determined. These factors may include proposed acquisitions, liquidation procedures, capital injection, receipt of additional collateral, mergers, or refinancing plans. A doubtful classification for an entire credit should be avoided when collection of a specific portion appears highly probable with the adequately secured portion graded substandard.
Loss. Loans classified as “loss” are graded 11 and are considered uncollectible and are of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the credit has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset yielding such a minimum value even though partial recovery may be affected in the future. Amounts classified as loss should be promptly charged off.
As of June 30, 2026 and December 31, 2025, and based on the most recent analysis performed, the risk category of commercial loans by class of loans was as follows:
| Revolving | |||||||||||||||||||||||||||||||
| Loans | |||||||||||||||||||||||||||||||
| Term Loans Amortized Costs Basis by Origination Year | Amortized | ||||||||||||||||||||||||||||||
| June 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Cost Basis | Total | |||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||
| Owner-occupied | |||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Current Period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
21
NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)
| Revolving | |||||||||||||||||||||||||||||||
| Loans | |||||||||||||||||||||||||||||||
| Term Loans Amortized Costs Basis by Origination Year | Amortized | ||||||||||||||||||||||||||||||
| June 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Cost Basis | Total | |||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||
| Nonowner-occupied | |||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Current Period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Revolving | |||||||||||||||||||||||||||||||
| Loans | |||||||||||||||||||||||||||||||
| Term Loans Amortized Costs Basis by Origination Year | Amortized | ||||||||||||||||||||||||||||||
| June 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Cost Basis | Total | |||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Current Period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Revolving | |||||||||||||||||||||||||||||||
| Loans | |||||||||||||||||||||||||||||||
| Term Loans Amortized Costs Basis by Origination Year | Amortized | ||||||||||||||||||||||||||||||
| June 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Cost Basis | Total | |||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Current Period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
22
NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)
| Revolving | |||||||||||||||||||||||||||||||
| Loans | |||||||||||||||||||||||||||||||
| Term Loans Amortized Costs Basis by Origination Year | Amortized | ||||||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Cost Basis | Total | |||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||
| Owner-occupied | |||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Current Period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Revolving | |||||||||||||||||||||||||||||||
| Loans | |||||||||||||||||||||||||||||||
| Term Loans Amortized Costs Basis by Origination Year | Amortized | ||||||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Cost Basis | Total | |||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||
| Nonowner-occupied | |||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Current Period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Revolving | |||||||||||||||||||||||||||||||
| Loans | |||||||||||||||||||||||||||||||
| Term Loans Amortized Costs Basis by Origination Year | Amortized | ||||||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Cost Basis | Total | |||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Current Period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
23
NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)
| Revolving | |||||||||||||||||||||||||||||||
| Loans | |||||||||||||||||||||||||||||||
| Term Loans Amortized Costs Basis by Origination Year | Amortized | ||||||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Cost Basis | Total | |||||||||||||||||||||||
| Commercial and Industrial | |||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Current Period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. For residential and consumer loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment of residential and consumer loans by class of loans based on repayment activity as of June 30, 2026 and December 31, 2025:
| Revolving | |||||||||||||||||||||||||||||||
| Loans | |||||||||||||||||||||||||||||||
| Term Loans Amortized Costs Basis by Origination Year | Amortized | ||||||||||||||||||||||||||||||
| June 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Cost Basis | Total | |||||||||||||||||||||||
| Residential Real Estate | |||||||||||||||||||||||||||||||
| Payment Performance | |||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Current Period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Revolving | |||||||||||||||||||||||||||||||
| Loans | |||||||||||||||||||||||||||||||
| Term Loans Amortized Costs Basis by Origination Year | Amortized | ||||||||||||||||||||||||||||||
| June 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Cost Basis | Total | |||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||||||||||
| Automobile | |||||||||||||||||||||||||||||||
| Payment Performance | |||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Current Period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
24
NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)
| Revolving | |||||||||||||||||||||||||||||||
| Loans | |||||||||||||||||||||||||||||||
| Term Loans Amortized Costs Basis by Origination Year | Amortized | ||||||||||||||||||||||||||||||
| June 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Cost Basis | Total | |||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||||||||||
| Home Equity | |||||||||||||||||||||||||||||||
| Payment Performance | |||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Current Period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Revolving | |||||||||||||||||||||||||||||||
| Loans | |||||||||||||||||||||||||||||||
| Term Loans Amortized Costs Basis by Origination Year | Amortized | ||||||||||||||||||||||||||||||
| June 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Cost Basis | Total | |||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||
| Payment Performance | |||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Current Period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Revolving | |||||||||||||||||||||||||||||||
| Loans | |||||||||||||||||||||||||||||||
| Term Loans Amortized Costs Basis by Origination Year | Amortized | ||||||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Cost Basis | Total | |||||||||||||||||||||||
| Residential Real Estate | |||||||||||||||||||||||||||||||
| Payment Performance | |||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Current Period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
25
NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)
| Revolving | |||||||||||||||||||||||||||||||
| Loans | |||||||||||||||||||||||||||||||
| Term Loans Amortized Costs Basis by Origination Year | Amortized | ||||||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Cost Basis | Total | |||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||||||||||
| Automobile | |||||||||||||||||||||||||||||||
| Payment Performance | |||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Current Period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Revolving | |||||||||||||||||||||||||||||||
| Loans | |||||||||||||||||||||||||||||||
| Term Loans Amortized Costs Basis by Origination Year | Amortized | ||||||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Cost Basis | Total | |||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||||||||||
| Home Equity | |||||||||||||||||||||||||||||||
| Payment Performance | |||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Current Period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Revolving | |||||||||||||||||||||||||||||||
| Loans | |||||||||||||||||||||||||||||||
| Term Loans Amortized Costs Basis by Origination Year | Amortized | ||||||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Cost Basis | Total | |||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||
| Payment Performance | |||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Current Period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
The Company originates residential, consumer, and commercial loans to
customers located primarily in the southeastern areas of Ohio as well as the
western counties of West Virginia. Approximately 3.47 % of total loans were unsecured at June 30, 2026, down from 3.73 % at December 31, 2025
Modifications to Borrowers Experiencing Financial Difficulty:
Occasionally, the Company modifies loans to borrowers experiencing financial difficulty. These modifications may include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; a reduction in the contractual principal and interest payments of the loan; or short-term interest-only payment terms.
26
NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)
During the three and six months ended June 30, 2026 and 2025, the Company experienced no new modifications to borrowers
experiencing financial difficulty.
The following table presents the activity in the ACL by portfolio segment for the three months ended June 30, 2026 and 2025:
| Residential | Commercial | Commercial | |||||||||||||||||
| June 30, 2026 | Real Estate | Real Estate | and Industrial | Consumer | Total | ||||||||||||||
| Allowance for credit losses: | |||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | ||||||||||||||
| Provision for credit losses | ( | ) | |||||||||||||||||
| Loans charged off | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||
| Recoveries | |||||||||||||||||||
| Total ending allowance balance | $ | $ | $ | $ | $ |
| Residential | Commercial | Commercial | |||||||||||||||||
| June 30, 2025 | Real Estate | Real Estate | and Industrial | Consumer | Total | ||||||||||||||
| Allowance for credit losses: | |||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | ||||||||||||||
| Provision for credit losses | |||||||||||||||||||
| Loans charged-off | ( | ) | ( | ) | ( | ) | |||||||||||||
| Recoveries | |||||||||||||||||||
| Total ending allowance balance | $ | $ | $ | $ | $ |
The following table presents the activity in the ACL by portfolio
segment for the six months ended June 30, 2026 and 2025:
| Residential | Commercial | Commercial | |||||||||||||||||
| June 30, 2026 | Real Estate | Real Estate | and Industrial | Consumer | Total | ||||||||||||||
| Allowance for credit losses: | |||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | ||||||||||||||
| Provision for credit losses | ( | ) | |||||||||||||||||
| Loans charged off | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Recoveries | |||||||||||||||||||
| Total ending allowance balance | $ | $ | $ | $ | $ | ||||||||||||||
| Residential | Commercial | Commercial | |||||||||||||||||
| June 30, 2025 | Real Estate | Real Estate | and Industrial | Consumer | Total | ||||||||||||||
| Allowance for credit losses: | |||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | ||||||||||||||
| Provision for credi losses | |||||||||||||||||||
| Loans charged-off | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||
| Recoveries | |||||||||||||||||||
| Total ending allowance balance | $ | $ | $ | $ | $ |
27
The following table presents the amortized cost basis of
collateral dependent loans by class of loans as of June 30, 2026 and December 31, 2025:
| Collateral Type | |||||||||||
| June 30, 2026 | Real Estate | Business Assets | Total | ||||||||
| Residential real estate | $ | $ | $ | ||||||||
| Commercial real estate: | |||||||||||
| Owner-occupied | |||||||||||
| Non-owner-occupied | |||||||||||
| Construction | |||||||||||
| Commercial and Industrial | |||||||||||
| Consumer: | |||||||||||
| Automobile | |||||||||||
| Home equity | |||||||||||
| Other | |||||||||||
| Total collateral dependent loans | $ | $ | $ | ||||||||
| Collateral Type | |||||||||||
| December 31, 2025 | Real Estate | Business Assets | Total | ||||||||
| Residential real estate | $ | $ | $ | ||||||||
| Commercial real estate: | |||||||||||
| Owner-occupied | |||||||||||
| Non-Owner-occupied | |||||||||||
| Construction | |||||||||||
| Commercial & Industrial | |||||||||||
| Consumer: | |||||||||||
| Automobile | |||||||||||
| Home equity | |||||||||||
| Other | |||||||||||
| Total collateral dependent loans | $ | $ | $ | ||||||||
The recorded investment of a loan excludes accrued interest and net deferred origination fees and costs due to immateriality.
Nonaccrual loans and loans past due 90 days or more and still accruing include both smaller balance homogenous loans that are collectively evaluated for impairment and individually classified as impaired loans.
The Company transfers loans to OREO, at fair value
less cost to sell, in the period the Company obtains physical possession of the
property (through legal title or through a deed in lieu). The Company had no 784
and $788 as of June 30, 2026 and December 31, 2025, respectively.
NOTE 5 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a
party to financial instruments with off-balance sheet risk in the normal course
of business to meet the financing needs of its customers. These financial instruments include
commitments to extend credit, standby letters of credit and financial
guarantees. The Bank’s exposure to
credit loss in the event of nonperformance by the other party to the financial
instrument for commitments to extend credit and standby letters of credit, and
financial guarantees written, is represented by the contractual amount of those
instruments. The contract amounts of
these instruments are not included in the consolidated financial statements. At
June 30, 2026, the contract amounts of these instruments totaled approximately
$228,736 , compared to $226,570 at December 31, 2025. The Bank estimates expected credit losses
over the contractual period in which the Bank is exposed to credit risk via a
contractual obligation to extend credit.
At June 30, 2026, the estimated ACL related to off-balance sheet
commitments was $731 , compared to $871 at December 31, 2025. This includes
provision expense recoveries of $60 and $140 during the three and six months
ended June 30, 2026, compared to $115 and $55 in provision expense during the
three and six months ended June 30, 2025, respectively. The Bank uses the same
credit policies in making commitments and conditional obligations as it does
for instruments recorded on the balance sheet. Since many of these instruments
are expected to expire without being drawn upon, the total contract amounts do
not necessarily represent future cash requirements.[-- End "Note 5. Financial Instruments with
off-Balance Sheet Risk" Segment --][-- Start "Note 6. Other Borrowed Funds Q1"
Segment --]
28
NOTE 6 - OTHER BORROWED FUNDS
Other borrowed funds at June 30, 2026 and December 31, 2025 are comprised of advances from the Federal Home Loan Bank (“FHLB”) of Cincinnati and promissory notes.
| FHLB | Promissory | ||||||||||
| Borrowings | Notes | Totals | |||||||||
| June 30, 2026 | $ | $ | $ | ||||||||
| December 31, 2025 | $ | $ | $ |
Pursuant to collateral agreements with the FHLB, advances are
secured by $427,646 in qualifying mortgage loans, $31,972 in commercial loans
and $3,118 in FHLB stock at June 30, 2026.
Fixed-rate FHLB advances of $39,656 mature through 2042 and have
interest rates ranging from 1.53 % to 4.91 % and a year-to-date weighted average
cost of 3.99 % at June 30, 2026 and 4.03 % at December 31, 2025. There were no variable-rate FHLB borrowings
at June 30, 2026.
At June 30, 2026, the Company had a cash management line of credit
enabling it to borrow up to $100,000 from the FHLB, subject to the stock
ownership and collateral limitations described below. All cash management advances have an original
maturity of 90 days. The line of credit
must be renewed on an annual basis.
There was $100,000 available on this line of credit at June 30, 2026.
Based on the Company's current FHLB stock ownership, total assets
and pledgeable loans, the Company had the ability to obtain borrowings from the
FHLB up to a maximum of $267,679 at June 30, 2026. Of this maximum borrowing capacity, the
Company had $170,848 available to use as additional borrowings, of which
$170,848 could be used for short term, cash management advances, as mentioned
above. Furthermore, the Company pledged collateral to the FRB to
establish a borrowing line, which had availability of $35,665 at June 30, 2026.
At June 30, 2026, the Company had a federal funds line of credit
with two correspondent banks totaling $25,000 . The lines of credit are not
committed and are provided at the discretion of the correspondent bank. No
collateral has been pledged to the lines of credit. Any advance is due to be
repaid the next business day. At June 30, 2026, there was $25,000 available on
these lines of credit.
Promissory notes, issued primarily by Ohio Valley, are due at
various dates through a final maturity date of March 11, 2027 , and have fixed rates of 4.25 % and a
year-to-date weighted average cost of 4.43 % at June 30, 2026, as compared to 4.49 % at December 31, 2025. At June 30, 2026, there were five promissory notes payable by
Ohio Valley to related parties totaling $2,166 , as compared to six promissory notes
totaling $2,601 at December 31, 2025. There were no
Letters of credit issued on the Bank’s behalf by the FHLB to
collateralize certain public unit deposits as required by law totaled $57,175
at June 30, 2026 and $52,000 at December 31, 2025.
Scheduled principal payments as of June 30, 2026:
| FHLB | Promissory | ||||||||||
| Borrowings | Notes | Totals | |||||||||
| 2026 | $ | $ | $ | ||||||||
| 2027 | |||||||||||
| 2028 | |||||||||||
| 2029 | |||||||||||
| 2030 | |||||||||||
| Thereafter | |||||||||||
| $ | $ | $ |
29
NOTE 7 – LEASES
Substantially all of the Company’s operating lease right-of-use
(“ROU”) assets and operating lease liabilities represent leases for branch
buildings and office space to conduct business. Leases with an initial
term of 12 months or less are not recorded on the consolidated balance sheet.
The lease expense for these leases is recorded on a straight-line basis over
the lease term. Leases with initial terms in excess of 12 months are recorded
as either operating or financing leases on the consolidated balance sheet. The
Company has no finance lease arrangements. Operating leases have remaining
lease terms ranging from 4.1 years to 15.1 years, some of
which include options to extend the leases for up to 15 years. Operating lease ROU assets and operating lease
liabilities are valued based on the present value of future minimum lease
payments, discounted with an incremental borrowing rate for the same term as
the underlying lease. The Company has one lease arrangement that contains
variable lease payments that are adjusted periodically for an index.
Balance sheet information related to leases is as follows:
| As of | As of | ||||||
| June 30, | December 31, | ||||||
| 2026 | 2025 | ||||||
| Operating leases: | |||||||
| Operating lease right-of-use assets | $ | $ | |||||
| Operating lease liabilities |
The components of lease cost were as follows:
| Three months ended | Six months ended | ||||||||||||||
| June 30, | June 30, | ||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||
| Operating lease cost | $ | $ | $ | $ | |||||||||||
| Short-term lease expense | |||||||||||||||
Future undiscounted lease payments for operating leases with initial terms of one year or more as of June 30, 2026 are as follows:
| Operating | |||
| Leases | |||
| 2026 (remaining) | $ | ||
| 2027 | |||
| 2028 | |||
| 2029 | |||
| 2030 | |||
| Thereafter | |||
| Total lease payments | |||
| Less: Imputed Interest | ( | ) | |
| Total operating leases | $ |
Other information was as follows:
| As of | As of | ||||||
| June 30, | December 31, | ||||||
| 2026 | 2025 | ||||||
| Weighted-average remaining lease term for operating leases | |||||||
| Weighted-average discount rate for operating leases | % | % |
NOTE 8 – RISKS AND UNCERTAINTIES
The risks pertinent to the Bank regarding liquidity and rising deposit costs have increased due to an elevated interest rate environment and increased deposit competition within our markets. Our liquidity position is supported by the management of liquid assets such as cash and interest-bearing deposits with banks, and liabilities such as core deposits. The Bank can also access other sources of funds such as brokered deposits and FHLB advances. With the present economic conditions putting a strain on liquidity and higher borrowing costs, the Company believes it has sufficient liquid assets and funding sources should there be a liquidity need.
30
NOTE 9 – DEPOSITS
Deposits are comprised of the following:
| June 30, | December 31, | ||||||
| 2026 | 2025 | ||||||
| Noninterest-bearing deposits | $ | $ | |||||
| Interest-bearing deposits: | |||||||
| Negotiable order of withdrawal accounts | |||||||
| Savings and money market | |||||||
| Time deposits of $250 or less | |||||||
| Time deposits of more than $250 | |||||||
| Total interest-bearing deposits | |||||||
| Total deposits | $ | $ |
Brokered deposits, included in time deposits, were $45,754 and $61,464 at June 30, 2026 and December 31, 2025, respectively.
NOTE 10 – REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue is segregated based on the nature of products and services offered as part of contractual arrangements. Revenue from contracts with customers within the scope of ASC 606 is broadly segregated within the following noninterest income categories:
• Service charges on deposit accounts – These include general service fees charged for deposit account maintenance and activity and transaction-based fees charged for certain services, such as debit card, wire transfer, or overdraft activities. Revenue is recognized when the performance obligation is completed, which is generally after a transaction is completed or monthly for account maintenance services.
• Trust fees - This includes periodic fees due from trust customers for managing the customers' financial assets. Fees are generally charged on a quarterly or annual basis and are recognized ratably throughout the period, as the services are provided on an ongoing basis.
• Electronic refund check/deposit fees – A tax refund clearing agreement between the Bank and a tax refund processor requires the Bank to process electronic refund checks and electronic refund deposits presented for payment on behalf of taxpayers through accounts containing taxpayer refunds. The Bank, in turn, receives a fee paid by the third-party tax refund processor for each transaction that is processed. The amount of fees received is tiered based on the tax refund product selected. Since the Bank acts as a sub servicer in the tax process relationship, a portion of the fee collected is passed on to the tax refund processor. The tax refund clearing agreement, and associated revenue recognized, ended in 2025.
• Debit/credit card interchange income – This includes interchange income from cardholder transactions conducted with merchants, throughout various interchange networks with which the Company participates. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, as transaction processing services are provided to the deposit customer. Gross fees from interchange are recorded in operating income separately from gross network costs, which are recorded in operating expense.
• Tax preparation fees – This includes fees received by tax preparation customers of Loan Central as part of the Bank’s Tax Refund Advance Loans ("TAL") business. After Loan Central prepares a customer’s tax return, the customer is offered the opportunity to have immediate access to a portion of the anticipated tax refund by entering into a TAL with the Bank. As part of the process, the tax customer completes a loan application and authorizes the expected tax refund to be deposited with the Bank once it is issued by the IRS. Once the Bank receives the tax refund, the refund is used to repay the TAL and Loan Central’s tax preparation fees, then the remainder of the refund is remitted to Loan Central’s tax customer.
31
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars in thousands, except share and per share data)
Cautionary Note Regarding Forward-Looking Statements
Certain statements contained in this quarterly report on
Form 10-Q (the “report”) and other publicly available documents incorporated
herein by reference constitute "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and as defined in the Private Securities Litigation Reform Act of
1995. Such statements are often, but not
always, identified by the use of such words as “believes,” “anticipates,”
“expects,” “intends,” “plans,” “goals,” “seeks,” “projects,” “estimates,”
“strategy,” “future,” “likely,” “may,” “should,” “will,” and other similar
expressions. Such statements involve various important assumptions, risks,
uncertainties, and other factors, many of which are beyond our control,
particularly with regard to developments related to the current economic and
geopolitical landscape, and which could cause actual results to differ
materially from those expressed in such forward looking statements. However, it
is difficult to predict the effect of known factors, and Ohio Valley Banc Corp.
(“Ohio Valley”) cannot anticipate all factors that could affect future results.
Important factors that could cause actual results to differ materially from
expectations expressed in or implied in forward looking statements include, but
are not limited to: the effects of fluctuating interest rates on our customers’
operations and financial condition; changes in political, economic or other factors,
such as inflation rates, recessionary or expansive trends, taxes, tariffs, the
effects of implementation of legislation and the continuing economic
uncertainty in various parts of the world; competitive pressures; the level of
defaults and prepayment on loans made by Ohio Valley and its direct and
indirect subsidiaries (collectively, the “Company”); unanticipated litigation,
claims, or assessments; fluctuations in the cost of obtaining funds to make
loans; and regulatory changes. Additional detailed information concerning such
factors is available in the Company’s filings with the Securities and Exchange
Commission, under the Exchange Act, including the disclosure under the heading
“Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2025 and elsewhere in this document
(including, without limitation, in conjunction with the forward looking
statements themselves and under the heading “Critical Accounting Estimates”).
All forward looking statements are qualified in their entirety by these and
other cautionary statements that the Company makes from time to time in its
other SEC filings and public communications. Readers are cautioned not to place
undue reliance on such forward looking statements, which speak only as of the
date hereof. The Company undertakes no obligation and disclaims any duty to
update or revise any forward looking statements, whether as a result of new
information, unanticipated future events or otherwise, except as required by
applicable law.
BUSINESS OVERVIEW: The following discussion on consolidated financial statements includes
the accounts of Ohio Valley and its wholly-owned subsidiaries, The Ohio Valley
Bank Company (the “Bank”), Loan Central, Inc., a consumer finance company
(“Loan Central”), and Ohio Valley Financial Services Agency, LLC, an insurance
agency. The Bank has one active, wholly-owned subsidiary, Ohio Valley REO, LLC,
an Ohio limited liability company.
The Company is primarily engaged in commercial and
retail banking, offering a blend of commercial and consumer banking services
within southeastern Ohio as well as western West Virginia. The banking services
offered by the Bank include the acceptance of deposits in checking, savings,
time and money market accounts; the making and servicing of personal and
commercial loans; the making of construction and real estate loans; and credit
card services. The Bank also offers individual retirement accounts, safe deposit
boxes, wire transfers and other standard banking products and services.
Furthermore, the Bank offers Tax Refund Advance Loans (“TALs”) to Loan Central
tax customers. A TAL represents a short-term loan offered by the Bank to tax
preparation customers of Loan Central.
FINANCIAL RESULTS OVERVIEW: Net income totaled $2,927 during the second quarter
of 2026, a decrease of $1,283 from the same period in 2025. Earnings per share
for the second quarter of 2026 finished at $.62 per share, compared to $.89 per
share during the second quarter of 2025. Net income totaled $7,224 during the
first six months of 2026, a decrease of $1,392 from the same period in 2025.
Earnings per share during the first six months of 2026 finished at $1.53 per
share, compared to $1.83 per share during the first six months of
2025. Lower net earnings had a corresponding impact on the Company’s annualized
net income to average asset ratio, or return on assets, which decreased 42
basis points to 0.70% during the second quarter of 2026, and decreased 27 basis
points to 0.89% during the first six months of 2026, compared to the same
periods in 2025. In addition, the Company’s net income to average equity ratio,
or return on equity, decreased 397 basis points to 6.82% during the second
quarter of 2026, and decreased 282 basis points to 8.48% during the first six
months of 2026, compared to the same periods in 2025.
32
Lower earnings during the three and six months ended
June 30, 2026 compared to the same periods in 2025 were primarily impacted by higher
provision expense caused by the collateral impairments of two commercial loan
relationships. These collateral deficiencies required specific reserve
allocations that contributed to most of the $2,607 and $3,813 increases in
provision expense during the three and six months ended June 30, 2026 compared
to the same periods in 2025. Lower earnings were also impacted by growth in noninterest
expense, increasing $196 and $679 during the three and six months ended June
30, 2026 compared to the same periods in 2025. Noninterest expense was impacted
by higher salaries and employee benefit costs, software and other noninterest expense, partially
offset by lower data processing costs. These negative factors were partially
offset by growth in net interest and noninterest income, which collectively
increased $1,201 and $2,591 during the three and six months ended June 30, 2026
compared to the same periods in 2025. Net interest income grew in large part
due to a 12.6% and 10.6% increase in average earning assets during the three
and six months ended June 30, 2026, coming primarily from loans. The impacts
from earning asset growth were partially offset by decreases in the net
interest margin during both the quarterly and year-to-date periods, impacted by
higher funding costs. The improvement in noninterest income occurred primarily during
the second quarter of 2026 with $377 in unrealized gains earned on equity
securities as part of the Company’s participation in the Visa Inc. exchange offer.
This contributed to a $338 increase in quarterly noninterest income, while allowing
year-to-date noninterest income to finish relatively stable with the prior
year-to-date, decreasing by just $20.
During the three and six months ended June 30, 2026,
net interest income increased $863, or 5.9%, and $2,611, or 9.4%, over the same
periods in 2025. The increases were primarily related to a $177,570 and
$149,285 increase in average earning assets during the quarterly and
year-to-date periods. This was led mostly by a 14.7% and 14.4% increase in
average loans during the three and six months ended June 30, 2026 compared to
the same periods in 2025. The growth in average loans was related to the
commercial and residential real estate lending segments. The emphasis on
higher-yielding loan growth during the first half of 2026 contributed to lower
average securities during the three and six months ended June 30, 2026. The decrease in average securities was
also impacted by a reduced need for securities to be pledged as collateral to
secure public fund deposits. Net interest earnings were negatively affected by a
lower net interest margin, which decreased 24 basis points during the second
quarter of 2026, and decreased 4 basis points during the first half of 2026,
compared to the same periods in 2025. Margin contraction, especially during the
quarter, was largely impacted by the effects of an $817 market discount on
purchased loans that was recorded to interest income during the second quarter
of 2025 compared to no market discount income during 2026. Margin decreases were also
impacted by the cost of funding sources increasing at a greater pace than the
yield on earning assets. The cost of funding sources increased as the
composition of funding sources shifted to higher cost certificates of deposit
(“CDs”) from promotional offerings, and higher money market accounts from
individual and business customers.
During the three and six months ended June 30, 2026,
the Company’s provision for credit loss expense increased $2,607 and $3,813,
when compared to the same periods in 2025. The increase resulted primarily from
$4,531 and $6,561 in specific allocations on two collateral dependent loans
during the three and six months ended June 30, 2026. These increases in
reserves were partially offset by a net decrease in modeled loss rates and a
decrease in certain qualitative risk factors and lower net charge offs.
During the three months ended June 30, 2026,
noninterest income increased $338, or 11.9%, over the same period in 2025,
while decreasing $20, or 0.3%, during the six months ended June 30, 2026 from
the same period in 2025. The quarterly increase was driven by $377 in
unrealized gains on equity securities. This was from the Company’s
participation in the Visa Inc. exchange offer during the second quarter of 2026 to
exchange its Visa B-1 shares for a mix of Visa B-3 and Class C common stock,
with the Class C common stock being marked to fair value resulting in the gains
on equity securities previously mentioned. Further increases to noninterest
income came from higher debit and credit card interchange income, and bank
owned life insurance ("BOLI") and annuity asset income, which collectively increased $69
and $293 during the three and six months ended June 30, 2026 compared to the
same periods in 2025. Decreases to noninterest income came primarily from
electronic refund check and deposit fees, which decreased $135 and $675 during
the three and six months ended June 30, 2026 compared to the same periods in
2025. This was due to the expiration of a tax processing agreement with a third
party.
During the three and six months ended June 30, 2026, noninterest expense increased $196, or 1.8%,
and $679, or 3.1%, over the same periods in 2025. Noninterest expense was
impacted mostly by salaries and employee benefits, which increased $359 and
$694 during the three and six months ended June 30, 2026 over the same periods
in 2025 due to annual merit increases and higher health insurance premiums. Other
noninterest expense was up $251 and $278 during the three and six months ended
June 30, 2026 over the same periods in 2025 due to higher state taxes, loan
costs, and other miscellaneous expenses associated with troubled credits. Also
increasing was software expense and FDIC insurance, which were collectively up
$151 and $341 during the three and six months ended June 30, 2026 over the same
periods in 2025. Software costs increased due to the investment in software to
enhance internal processes, while FDIC premiums increased due to a higher
assessment base and an increase in the assessment rate in relation to higher
nonperforming loans. Partially offsetting increases in noninterest expense were
lower data processing expenses, which decreased $605 and $619 during the three
and six months ended June 30, 2026 over the same periods in 2025. This was due
to a $544 recovery from a vendor in the second quarter of 2026 for a billing
error.
33
The $319 and $509 decreases in the Company’s provision
for income taxes during the three and six months ended June 30, 2026, compared
to the same periods in 2025, were largely due to the decrease in operating
income affected by the factors mentioned above, as well as a decrease in the
effective tax rate.
At June 30, 2026, total assets were $1,661,436, an
increase of $78,782 from year-end 2025. The increase in assets was primarily
the result of a $50,096 increase in loans, and a $31,513 increase in
interest-bearing deposits with banks. Loan growth was led by a 5.7% increase in
the Company’s commercial loan portfolio, and a 4.5% increase in the Company’s
residential real estate loan portfolio. The increase in interest-bearing
deposits with banks was primarily associated with balances maintained at the
Federal Reserve Bank (“FRB”) that were impacted by the year-to-date growth in
both interest- and noninterest-bearing deposit liabilities.
At June 30, 2026, total liabilities were $1,488,050,
up $75,653 from year-end 2025. Contributing most to this increase were higher
interest-bearing deposit balances, up $73,604 from year-end 2025, consisting of
higher balances from time deposits (+8.8%) and savings, negotiable order of withdrawal ("NOW") and money market
balances (+5.8%), while noninterest-bearing demand deposits increased 1.6% from
year-end 2025.
At June 30, 2026, total shareholders' equity was $173,386,
up $3,129 from December 31, 2025. This increase consisted of year-to-date net
income being partially offset by year-to-date cash dividends paid and an
after-tax increase in net unrealized losses on AFS securities. Regulatory
capital ratios of the Company remained higher than the "well
capitalized" minimums.
Comparison of Financial Condition
at June 30, 2026 and December 31, 2025
at June 30, 2026 and December 31, 2025
The following discussion focuses in more detail on the
consolidated financial condition of the Company at June 30, 2026 compared to
December 31, 2025. This discussion
should be read in conjunction with the interim consolidated financial
statements and the notes included in this Form 10‑Q.
Cash and Cash
Equivalents
At June 30, 2026, cash and cash equivalents were $78,084,
an increase of $32,187, or 70.1%, from December 31, 2025. The increase came
primarily from interest-bearing deposits with banks, which were up $31,513, or 101.5%,
from year-end 2025. The Company’s interest-bearing FRB clearing account
contributed most to the increase in interest-bearing deposits with banks,
representing 80% of cash and cash equivalents at June 30, 2026. The Company
utilizes its interest-bearing FRB clearing account to manage excess funds, as
well as to assist in funding earning asset growth. The increase in excess funds
during the first half of 2026 resulted primarily from growth in total deposits,
which were up 5.9% from year-end 2025. The interest rate paid on both the
required and excess reserve balances of the FRB is based on the targeted
federal funds rate established by the Federal Open Market Committee (“FOMC”).
During the first half of 2026, the FOMC took no action to reduce the targeted
federal funds rate, which remains at a target range of 3.50% to 3.75%. The
interest-bearing deposit balances in the FRB are 100% secured by the U.S.
Government.
As liquidity levels
continuously vary based on consumer activities, amounts of cash and cash
equivalents can vary widely at any given point in time. The Company’s focus
during periods of heightened liquidity will be to invest excess funds into
longer-term, higher-yielding assets, primarily loans, when opportunities arise.
34
Securities
The balance of total investment securities decreased $3,342,
or 1.3% from year-end 2025. The decrease came mostly from U.S. Government and
U.S. Government agency (“Agency”) mortgage-backed securities, which were collectively
down $3,654, or 1.5%, from year-end 2025. During the first half of 2026, total
purchases, net of maturities, for both U.S. Government and Agency
mortgage-backed securities totaled $17,152. This was completely offset by $19,189
in principal repayments coming mostly from Agency mortgage-backed securities.
The monthly repayment of principal has been the primary advantage of Agency
mortgage-backed securities as compared to other types of investment securities,
which deliver proceeds upon maturity or call date. At June 30, 2026, the
Company’s investment securities portfolio was comprised mostly of Agency
mortgage-backed securities at 63.0% of total investments, while U.S. Government
securities represented 32.7%.
Included in the factors mentioned above were changes
in net unrealized losses associated with AFS debt securities. During the first
half of 2026, an increase in long-term market rates led to a $2,352 decrease in
the fair value associated with the Company’s AFS securities at June 30, 2026.
The fair value of an investment security moves inversely to interest rates, so
as rates increased, the fair value decreased, causing the unrealized loss in
the portfolio to increase. These changes in rates are typical and do not impact
earnings of the Company as long as the securities are held to full
maturity.
Also included in total investment securities were
marketable equity securities of $376 at June 30, 2026. During the second
quarter of 2026, the Company participated in an exchange offer initiated by
Visa, Inc., where 954 Visa Class B-1 shares were tendered by the Company in
exchange for a mix of Visa Class B-3 and Class C common stock. The Company then
marked its Visa Class C common stock to fair value based on the Visa Class A
common stock market price as of the exchange date of May 8, 2026. Prior to the
exchange offer, the Company’s Class B-1 shares were not marketable and were
carried at a $0 cost basis. This initial fair value adjustment of the Company’s
Visa Class C common stock resulted in a $349 increase to equity securities. The
Company followed with another fair value adjustment at June 30, 2026 that
resulted in a $27 increase to equity securities. The changes in fair value from
equity securities were recognized in net income.
Loans
The loan portfolio represents the Company’s largest
asset category and is its most significant source of interest income. Loan
segments have been identified as Commercial Real Estate, Commercial and
Industrial, Residential Real Estate, and Consumer.
Commercial real estate consists of owner-occupied,
nonowner-occupied and construction loans. Owner-occupied loans consist of
nonfarm, nonresidential properties. A commercial owner-occupied loan is a
borrower-purchased building or space for which the repayment of principal is
dependent upon cash flows from the ongoing operations conducted by the party,
or an affiliate of the party, who owns the property. Owner-occupied loans of
the Company include loans secured by hospitals, churches, and hardware and
convenience stores. Nonowner-occupied loans are property loans for which the
repayment of principal is dependent upon rental income associated with the
property or the subsequent sale of the property, such as apartment buildings,
condominiums, hotels, and motels. These loans are primarily impacted by the
level of interest rates associated with the debt and by local economic
conditions, which dictate occupancy rates and the amount of rent charged. The
increase in debt service due to higher interest rates may not be able to be
passed on to tenants. As part of the origination process, loan interest rates
and occupancy rates are stressed to determine the impact on the borrower’s
ability to maintain adequate debt service under different economic conditions.
Furthermore, the Company monitors the concentration in any one industry and has
established limits relative to capital. In addition, credit quality trends are
monitored by industry to determine if a change in the risk exposure to a
certain industry may warrant a change in our underwriting standards. Table I
has been provided to illustrate the industry composition of the commercial real
estate portfolio. Commercial construction loans are extended to individuals as
well as corporations for the construction of an individual property or multiple
properties and are secured by raw land and the subsequent improvements.
Commercial real estate also includes loan participations with other banks
outside the Company’s primary market area. Although the Company is not actively
seeking to participate in loans originated outside its primary market area, it
has taken advantage of the relationships it has with certain lenders in those
areas where the Company believes it can profitably participate with an
acceptable level of risk.
Commercial and industrial loans consist of loans to
corporate borrowers primarily in small to mid-sized industrial and commercial
companies that include service, retail, and wholesale merchants. Collateral
securing these loans includes equipment, inventory, and stock.
35
Residential real estate loans consist of loans to
individuals for the purchase of 1-4 family primary residences with repayment
primarily through wage or other income sources of the individual borrower. The
Company’s loss exposure to these loans is dpendent on local market conditions for residential properties as loan amounts are determined, in part, by the fair value of the property at origination.
COMMERCIAL REAL ESTATE BY INDUSTRY
As of June 30, 2026
Table I
The
following table provides the composition of commercial real estate loans
by industry classification (as defined by the North American Industry
Classification System).
|
|
||||||
|
dollars
in thousands)
|
||||||
|
Amount
|
% of Total
|
|||||
|
Real Estate Rental and
Leasing.
|
$ | 275,852 | 54.33 | % | ||
|
Accommodation and Food
Services
|
76,917 | 15.15 | % | |||
|
Retail Trade
|
40,340 | 7.94 | % | |||
|
Health Care and Social
Assistance
|
23,706 | 4.67 | % | |||
|
Manufacturing
|
19,515 | 3.84 | % | |||
|
Construction
|
16,545 | 3.26 | % | |||
|
All Other
|
54,873 | 10.81 | % | |||
|
Total
|
$ | 507,748 | 100.00 | % | ||
Consumer loans are primarily secured by automobiles,
mobile homes, recreational vehicles, and other personal property. Personal
loans and unsecured credit card receivables are also included as consumer
loans.
The Company’s loan balances increased to $1,246,114 at
June 30, 2026, representing an increase of $50,096, or 4.2%, as compared to
$1,196,018 at December 31, 2025. The
increase in loans came primarily from both the commercial and residential real
estate portfolios, as well as the commercial and industrial portfolio, while
partially being offset by a decrease in the consumer loan portfolio from
year-end 2025.
The Company’s commercial loan portfolio increased $36,479,
or 5.7%, from year-end 2025. The most significant driver of this increase was
higher loan balances within the commercial real estate portfolio, which
increased $37,711, or 8.0%, from year-end 2025.
At June 30, 2026, commercial real estate loans represented the largest
segment of the Company’s total loan portfolio at 40.7%. The increase from
year-end 2025 came primarily from new originations within the nonowner-occupied
and construction loan segments.
The growth in commercial loans was partially offset by
a decrease in the commercial and industrial portfolio, which was down $1,232,
or 0.7%, from year-end 2025. The decrease was impacted by an increase in
principal repayments during the first half of 2026. While management believes
lending opportunities exist in the Company’s markets, future commercial lending
activities will depend upon economic and other related conditions, such as
general demand for loans in the Company’s primary markets, interest rates
offered by the Company, and the effects of competitive pressure and normal
underwriting considerations. Management will continue to place emphasis on its
commercial lending, which generally yields a higher return on investment
compared to other types of loans.
At June 30, 2026, residential real estate loans
represented the second largest segment of the Company’s total loan portfolio at
35.1%. During 2026, mortgage rates remained elevated relative to variable rate
options, which provided the Company with fewer opportunities to originate and
sell long-term fixed-rate residential mortgages to the Federal Home Loan
Mortgage Corporation. Due to the elevated mortgage rates, mortgage customers
were selecting more in-house variable rate mortgage products than long-term fixed
rate products, which enhanced the growth in the portfolio. As a result,
residential real estate loans increased $19,013, or 4.5%, from year-end 2025.
36
The increases in the Company’s commercial and
residential real estate loan portfolios at June 30, 2026 were partially offset
by a decrease in the Company’s consumer loan portfolio, which was down $5,396,
or 3.8%, from year-end 2025. This change was impacted by a $5,412, or 14.5%,
decrease in automobile loans. This was directly impacted by management’s
strategy to place more emphasis on higher yielding loan portfolios (i.e.
commercial, and to a smaller extent, residential real estate). Indirect
automobile loans bear additional costs from dealers that partially offset
interest revenue and lower the rate of return. As a result, the Company exited
the indirect lending business for automobiles and recreational vehicles in
2024. Decreases in consumer loans also came from a $4,185, or 7.9%, decrease in
other consumer loans from year-end 2025, impacted by principal repayments and
payoffs. Decreases in consumer loans were partially offset by a $4,201, or 8.3%,
increase in home equity lines of credit.
Allowance for Credit Losses
The Company maintains an ACL that represents
management’s best estimate of the appropriate level of losses and risks
inherent in our applicable financial assets under the current expected credit
loss (“CECL”) model. The amount of the ACL should not be interpreted as an
indication that charge-offs in future periods will necessarily occur in those
amounts, or at all. The determination of the ACL involves a high degree of
judgement and subjectivity. Please refer to Note 1 of the notes to the
financial statements for discussion regarding our ACL methodologies for
securities and loans.
For AFS debt securities, the Company evaluates the
securities at each measurement date to determine whether the decline in the
fair value below the amortized costs basis is due to credit-related factors or
noncredit-related factors. As
of June 30, 2026, the Company determined that all AFS securities that
experienced a decline in fair value below the amortized cost basis were due to non-credit
related factors. Therefore, no ACL was recorded, and no provision expense was
recognized during the six months ended June 30, 2026.
For HTM debt
securities, the Company evaluates the securities collectively by major security
type at each measurement date to determine expected credit losses based on the issuer’s
bond rating, historical loss, financial condition, and timely principal and
interest payments. At June 30, 2026, the ACL for HTM debt securities was $1
based on a .02% cumulative default rate taken from the S&P and Moody’s bond
rating index. This compares to an ACL of $1 at December 31, 2025.
For loans, the Company’s ACL is management’s estimate of
expected lifetime credit losses, measured over the contractual life of a loan,
that considers historical loss experience, current conditions, and forecasts of
future economic conditions. The ACL on loans is established through a provision
for credit losses recognized in earnings. The ACL on loans is reduced by
charge-offs on loans and is increased by recoveries of amounts previously
charged off. Management employs a process and methodology to estimate the ACL
on loans that evaluates both quantitative and qualitative factors within two
main components. The first component involves pooling loans into portfolio
segments for loans that share similar risk characteristics. The second
component involves individually analyzed loans that do not share similar risk
characteristics with loans that are pooled into portfolio segments. The ACL for
loans with similar risk characteristics are collectively evaluated for expected
credit losses based on certain quantitative information that include historical
loss rates, prepayment rates, and curtailment rates. Expected credit losses on
loans with similar characteristics are also determined by considering certain
qualitative factors that include national unemployment rates, national gross
domestic product forecasts, changes in lending policy, quality of loan review,
and delinquency status. The ACL for loans that do not share similar risk
characteristics are individually evaluated for expected credit losses primarily
based on foreclosure status and whether a loan is collateral-dependent.
Expected credit losses on individually evaluated loans are then determined
using the present value of expected future cash flows based upon the loan’s
original effective interest rate, at the loan’s observable market price, or if
the loan was collateral dependent, at the fair value of the collateral.
As of June 30, 2026, the ACL for loans totaled $16,610, or
1.33%, of total loans. As of December 31, 2025, the ACL for loans totaled
$11,519, or 0.96%, of total loans. The $5,091, or 44.2%, increase in the ACL
was impacted
by a $6,561 increase in specific reserves on loans individually evaluated for
impairment from year-end 2025. During the first half of 2026, the Company
individually evaluated the commercial loans of two borrowers for expected
credit loss. Of the two stressed loan relationships, one is a commercial and
industrial loan to an automobile dealership and the other is a commercial real
estate loan for the construction of a hotel. After measuring the fair value of
the loans’ collateral to the loans’ recorded investment, the Company identified
$6,561 in expected losses based on the impairment associated with the
borrowers’ collateral. This resulted in a corresponding charge to provision
expense to establish the specific allocation within the ACL at June 30, 2026. The
Company considers the specific allocations to be related to this specific group
of loan relationships and not reflective of a broader deterioration in
portfolio credit quality.
37
The increase in the ACL was also impacted by additional
reserves associated with loan growth of $50,096 during the first half of 2026
compared to a $39,442 increase
in loan balances during the first half of 2025. These increases in specific and
general reserves were partially offset by the improvements in certain qualitative
risk factors that included improved portfolio terms, such as reduced exposure
to variable rate loans repricing higher and a positive net charge-off trend for
consumer loans due to exiting indirect lending, along with improved general
economic conditions. The Company also experienced a decrease in modeled loss rates largely due to the
improvement in unemployment projections.
The Company
experienced higher delinquency levels as compared to year-end 2025.
Nonperforming loans to total loans increased to 1.44% at June 30, 2026,
compared to 1.40% at December 31, 2025, while nonperforming assets to total
assets increased to 1.08% at June 30, 2026, compared to 1.06% at December 31,
2025. The increase in nonperforming loans was primarily related to one
commercial loan being placed on nonaccrual status during the first quarter of
2026. The loan is secured by commercial
real estate and was identified as having collateral impairment, which required
a specific allocation of the ACL at June 30, 2026.
Management
believes that the ACL at June 30, 2026 was appropriate to absorb expected
losses in the loan portfolio. Changes in the circumstances of particular
borrowers, as well as adverse developments in the economy, are factors that
could change, and management will make adjustments to the ACL as needed. Asset
quality will continue to remain a key focus of the Company as management
continues to stress not just loan growth, but quality in loan underwriting.
Deposits
Deposits are used as part of
the Company’s liquidity management strategy to meet obligations for depositor
withdrawals, fund the borrowing needs of loan customers, and fund ongoing
operations. Deposits continue to be the most significant source of funds used
by the Company to support earning assets. Total deposits at June 30, 2026
increased $78,761, or 5.9%, from year-end 2025. The increase in deposits came
primarily from interest-bearing deposit balances, which were up by $73,604, or
7.2%, from year-end 2025, while noninterest-bearing deposits increased $5,157,
or 1.6%, from year-end 2025.
The increase in
noninterest-bearing demand deposits was primarily from the Company’s business
and incentive-based checking account balances.
The increase in
interest-bearing deposits came primarily from time deposit balances, which
increased $43,136, or 8.8%, from year-end 2025, $58,854 of which was a result
of an increase in retail time deposits. The Company targeted growth in retail
CDs by promoting a special CD rate during the first half of 2026 to assist in
funding loan growth. This resulted in the Company utilizing less wholesale CDs
to help fund earning asset demand, which decreased $15,718 from year-end
2025.
Savings and money market
balances also increased $25,971, or 8.4%, from year-end 2025. The increase came
primarily from money market accounts, which increased $24,264 from year-end
2025, impacted mostly by increases in the Company’s tiered money market product
(Money Fund) that was introduced in 2023 and offers a higher rate on tiered
deposit balances to both individual and business customers. Savings account
balances increased $1,707 impacted mostly by the Company’s statement savings
account product.
Further increases in
interest-bearing deposits came from NOW account balances, which increased $4,497,
or 2.1%, from year-end 2025. The increase was largely from a $4,733 increase in
the Company’s municipal NOW product balances, particularly within the Gallia
County, Ohio, and Mason County, West Virginia, market areas.
The Company expects to continue
to experience increased competition for deposits in its market areas, which
could challenge its net growth. The Company will continue to emphasize growth
and retention within its core deposit relationships during 2026, reflecting the
Company’s efforts to reduce its reliance on higher cost funding and improving
net interest income.
Other Borrowed Funds
Other borrowed funds were $41,822
at June 30, 2026, a decrease of $3,026, or 6.7%, from year-end 2025. The
decrease was related to the scheduled principal amortization for applicable
FHLB advances. While deposits continue to be the primary source of funding for
growth in earning assets, management will continue to utilize various wholesale
funding sources to help manage interest rate sensitivity and liquidity.
38
Shareholders’ Equity
Total shareholders' equity at June
30, 2026 increased $3,129, or 1.8%, to finish at $173,386, as compared to
$170,257 at December 31, 2025. This was primarily from year-to-date net income
partially offset by cash dividends paid and a decrease in accumulated other
comprehensive income. The decrease in accumulated other comprehensive income
was related to the $1,833, net of tax, market depreciation of AFS securities
due to an increase in market interest rates.
Comparison of Results of Operations
For the Three and Six Months Ended
June 30, 2026 and 2025
The following discussion
focuses, in more detail, on the consolidated results of operations of the
Company for the three and six months ended June 30, 2026, compared to the same
period in 2025. This discussion should be read in conjunction with the interim
consolidated financial statements and the notes included in this Form 10‑Q.
Net Interest Income
The most significant portion of the Company's revenue,
net interest income, results from properly managing the spread between interest
income on earning assets and interest expense incurred on interest-bearing
liabilities. During the three and six months ended June 30, 2026, net interest
income increased $863, or 5.9%, and $2,611, or 9.4%, compared to the same
periods in 2025, respectively. The quarterly and year-to-date improvements
during 2026 came from average earning asset growth, partially offset by a decrease
in the net interest margin. Average
asset growth was impacted primarily by loans and interest-bearing deposits with
banks, while the margin fell as our funding expenses outpaced the returns on
our earning assets.
Total interest and fee income recognized on the
Company’s earning assets increased $2,439, or 11.6%, during the second quarter
of 2026, and $5,114, or 12.5%, during the six months ended June 30, 2026, compared
to the same periods in 2025. The earnings growth was impacted by interest on
loans, which increased $1,995, or 11.6%, and $4,732, or 14.3%, during the three
and six months ended June 30, 2026, compared to the same periods in 2025. This
improvement was mostly impacted by average loan balances, which increased $156,821
during the second quarter of 2026 and $151,658 during the first half of 2026.
Balance increases came primarily from the commercial and residential real
estate loan portfolios due to higher commercial loan volume and a consumer
preference for short-term, variable rate residential real estate loans. The
effects of average loan growth on revenue improvement were partially offset by average
loan yields decreasing 21 basis points to 6.61% during the second quarter of
2026 and decreasing 5 basis points to 6.63% during the first half of 2026, compared
to the same periods in 2025. The loan yield decreases came primarily from the
income recognition of an $817 market discount on one purchased commercial and
industrial loan that paid off during the second quarter of 2025. While the
market discount benefited loan yields in 2025, the Company recognized no market
discount income on purchased loans during the same periods in 2026, causing
loan yields to decrease. At June 30, 2026, the Company had one purchased
commercial and industrial loan remaining with an unrecognized market discount
of $1,052.
Total interest income from interest-bearing deposits
with banks increased $327, or 51.2%, during the second quarter of 2026, and
increased $83, or 5.7%, during the first half of 2026, compared to the same
periods in 2025. This was largely from average balance increases with the
Company’s interest-bearing FRB clearing account, which increased $44,629 and
$16,789 during the three and six months ended June 30, 2026, compared to the
same periods in 2025. Balances in the FRB clearing account increased primarily from
interest-bearing deposit growth and net proceeds from securities, which provided
more than enough FRB clearing deposits to help fund loan growth during 2026. Interest
income from the FRB clearing account was negatively impacted by short-term rate
decreases during 2025. Between September and December 2025, the FRB took action
to reduce the rate associated with the FRB clearing account by 75 basis points
due to inflationary pressures, which lowered the target federal funds rate to a
range of 3.50% to 3.75% going into 2026. These decreases in interest rates had
a negative impact on the FRB clearing account’s interest earnings during the three
and six months ended June 30, 2026.
Total interest on securities increased $101, or 4.3%,
during the second quarter of 2026, and $319, or 7.1%, during the first half of
2026, compared to the same periods in 2025. The earnings growth was primarily
related to an increase in the average yield on taxable securities. This was
impacted by the Company’s decision to sell $36,950 in taxable securities yielding
1.35% during the second half of 2025 and replace them with similar taxable
securities yielding 4.52% with longer durations. As a result, the average yield
on taxable securities increased 53 basis points to 3.81% during the second
quarter of 2026, and 56 basis points to 3.80% during the first half of 2026,
compared to the same periods in 2025. The yield improvement from taxable
securities completely offset the negative impact of lower average securities
balances, which decreased $24,118, or 8.7%, during the second quarter of 2026,
and $19,402, or 7.1%, during the first half of 2026, compared to the same
periods in 2025. Average securities have decreased largely due to the Company’s
emphasis on growing higher-yielding loans during 2026, as well as a lower need
for securities to be pledged as collateral to secure public fund NOW accounts
from a year ago, particularly with the Bank’s public fund NOW account deposits
with the Ohio Treasurer (the “Treasurer”) as part of the Ohio Homebuyer Plus
program. Securities pledged as collateral to secure the Treasurer deposit
balances totaled $59,044 at June 30, 2026, compared to $81,123 at June 30, 2025.
39
Total interest expense incurred on the Company’s
interest-bearing liabilities increased $1,576, or 24.2%, during the second quarter
of 2026, and $2,503, or 19.0%, during the first half of 2026, compared to the
same periods in 2025. The increases were impacted by average interest-bearing
liability growth during both periods, coming mostly from higher time, savings,
and money market deposit balances. The increase in time deposit balances was
impacted by the Company’s strategy to raise additional retail deposits during
2026 by offering special CD rate offerings. The increase in savings and money
market account balances were mostly impacted by deposit growth within the
Company’s tiered money market product (Money Fund) that offered competitive
rates to both individual and business customers. These increases were partially
offset by a decrease in average NOW account balances, which came largely from
lower public fund balances from a year ago.
The growth in interest expense from higher average
interest-bearing liabilities was further impacted by a higher average cost on
average interest-bearing liabilities during 2026. The average rates on the
Company’s savings, NOW, and money market balances increased 16 basis points to
1.57% during the second quarter of 2026, and increased 12 basis points during
the first half of 2026, as product rates on tiered money market accounts
adjusted upward, while public fund NOW account balances shifted to a new higher-costing
cash sweep product offered by the Bank. While product rates on various savings,
NOW, and money market products increased, the Company experienced a decrease in
the weighted average cost of its time deposit balances. Prior to 2025, market
competition for deposits had resulted in higher rates on short-term CD
offerings. Since then, product rates on retail CDs have decreased during 2025
and into 2026. The Company’s strategy to fund loan growth by raising additional
retail deposits through special CD rate offerings was in effect during the
second half of 2025. This has allowed a large portion of these short-term
retail CDs to renew at lower rates during the three and six months ended June
30, 2026. As a result of the rate repricings on retail CDs, the average cost associated with time
deposits decreased by 16 basis points to 3.96% during the second quarter of
2026 and decreased 23 basis points to 4.00% during the first half of 2026, compared
to the same periods in 2025. This helped to reduce the expense impacts of
higher average deposit balances, and the average rate increases in specific
savings, NOW and money market products.
The Company’s net interest margin is defined as fully
tax-equivalent net interest income as a percentage of average earning assets.
During 2026, the Company’s net interest margin decreased 24 basis points to 3.92%
during the second quarter of 2026 and decreased 4 basis points to 3.97% during
the first half of 2026, compared to the same periods in 2025. The decrease in
the net interest margin was related to the average cost of funding sources
increasing at a greater pace than the yield on earning assets. Comparing the
first half of 2026 to the first half of 2025, the yield on average earning
assets improved 9 basis points in relation to the growth in higher yielding
loans that now comprise a larger percentage of earning assets, along with the
yield on taxable securities. However, included in the yield on earning assets
for the second quarter and first half of 2025 was the $817 market discount on
purchased loans compared to no market discount income during the same periods in 2026,
resulting in a 6 basis point decrease to the earning asset yield during the
second quarter of 2026. During both the three and six months ended June 30,
2026, the average cost of funds increased as the composition of funding sources
shifted to higher cost deposit sources, such as CDs and money market accounts
that were offered pursuant to certain promotional offerings mentioned above.
These promotional offerings were utilized to fund loan growth and to maintain
an appropriate liquidity position. As a result, the average cost of funds
increased 21 basis points during the second quarter of 2026 and increased 16
basis points during the first half of 2026, compared to the same periods in
2025. The Company’s primary focus is to invest its funds into higher yielding
assets, particularly loans, as opportunities arise. However, if loan balances
do not continue to expand and remain a larger component of overall earning
assets, the Company will face pressure within its net interest income and
margin improvement.
Provision
for Credit Losses
Provision for credit losses is recorded to achieve an ACL
that is adequate to absorb estimated losses inherent in the Company’s loan
portfolio, unfunded loans, and HTM debt securities. Management performs, on a
quarterly basis, a detailed analysis of the ACL that encompasses asset
portfolio composition, asset quality, loss experience and other relevant
economic factors. For the three months ended June 30, 2026, the Company’s
provision for credit losses expense totaled $3,755, an increase of $2,607 over
the three months ended June 30, 2025. For the six months ended June 30, 2026,
the Company’s provision for credit losses expense totaled $5,377, an increase
of $3,813 over the six months ended June 30, 2025.
40
The
increases in provision for credit loss expense during both periods were primarily
related to the establishment of specific allocations totaling $4,531 and $6,561
during the three and six months ended June 30, 2026 on two commercial loan
relationships that were deemed to be collateral dependent. In addition,
provision for credit loss expense was required to cover higher general reserves
for the increase in loans during 2026. These increases in reserves were
partially offset by the improvements in certain qualitative risk factors that
contributed to a $1,234 decrease in reserves during the second quarter of 2026,
and a $2,242 decrease in reserves during the first half of 2026, compared to
the same periods in 2025. Factors contributing to lower qualitative risk
included improved portfolio terms, such as reduced exposure to variable rate
loans repricing higher and a positive net charge-off trend for consumer loans
due to exiting indirect lending, along with lower modeled loss rates in
relation to the improvement in unemployment projections. The Company also
experienced less net charge-offs, which contributed to a $168 and $315 decrease
in provision expense during the three and six months ended June 30, 2026.
Credit loss expense during 2026 was also impacted by
unfunded commitments on off-balance sheet liabilities, which decreased $175 and
$195 during the three
and six months ended June 30, 2026, compared to the same periods in
2025. The impact came mostly from lower loss rates on commercial lines during
both periods.
Future provisions to
the ACL will continue to be based on management’s quarterly in-depth evaluation
that is discussed in further detail under the caption “Critical Accounting
Estimates” within this Management’s Discussion and Analysis.
Noninterest Income
Noninterest income increased $338, or 11.9%, during
the three months ended June 30, 2026, and decreased $20, or 0.3%, during the
six months ended June 30, 2026, compared to the same periods in 2025. The
quarterly increase was primarily from the $377 in unrealized gains on equity
securities from the Company’s participation in the Visa exchange offer
previously mentioned. Further increases to noninterest income came from higher
debit and credit card interchange fees, which increased $70 and $156 during the
three and six months ended June 30, 2026, compared to the same periods in 2025.
The growth in interchange income was driven by increases in transaction volume
for both debit and credit cards during 2026. Increases also came from BOLI and
annuity assets due to the receipt of life insurance proceeds during the first
quarter of 2026, leading to a $137 increase in BOLI and annuity earnings during
the six months ended June 30, 2026, while remaining relatively stable during
the second quarter of 2026, decreasing by $1. Decreases to noninterest income came
primarily from a $135 and $675 decrease in electronic refund check and deposit
fees during the three and six months ended June 30, 2026, compared to the same
periods in 2025. The decrease was due to
the expiration of a tax processing agreement with a third party at year-end
2025. The remaining noninterest income categories increased $27 during the
three months ended June 30, 2026, and decreased $15 during the six months ended
June 30, 2026, impacted by a mix of higher service charges on deposit accounts
and a decline in commercial loan servicing fees.
Noninterest
Expense
Noninterest expense increased $196, or 1.8%, during
the three months ended June 30, 2026, and increased $679, or 3.1%, during the
six months ended June 30, 2026, compared to the same periods in 2025. Contributing
most to the increase was the Company’s largest noninterest expense, salaries
and employee benefits, which increased $359, or 5.8%, during the three months
ended June 30, 2026, and $694, or 5.7%, during the six months ended June 30,
2026, compared to the same periods in 2025. The expense increase was primarily
related to annual merit increases and higher health insurance premiums.
Other noninterest expense increased $251 and $278
during the three and six months ended June 30, 2026 in large part due to higher
state taxes, loan costs, and other miscellaneous expenses associated with
troubled credits. State taxes included higher West Virginia Business &
Occupation and Ohio Financial Institutions taxes. Loan costs included increases
to foreclosure and loan vendor expense. Increases in other miscellaneous
expenses included the remittance of real estate taxes associated with the
properties of select troubled credits.
Higher noninterest expense also came from software
expense, which increased $74 and $206 during the three and six months ended
June 30, 2026. Higher costs in this category were the result of the investment
in software to enhance internal processes.
41
Also contributing to higher noninterest expense was higher
FDIC insurance premiums, which increased $77 and $135 during the three and six
months ended June 30, 2026. The increase was related to a higher assessment
base due to growth in assets and to an increase in the assessment rate in
relation to the higher nonperforming loans.
Partially offsetting increases in noninterest expense
were lower data processing expenses, which decreased $605 and $619 during the
three and six months ended June 30, 2026. This was due to a $544 recovery from
a vendor in the second quarter of 2026 for a billing error that occurred over a
7-year period.
The remaining noninterest expense categories increased
$40 during the second quarter of 2026, and decreased $15 during the first half
of 2026, compared to the same periods in 2025, impacted by a mix of higher
building, equipment and marketing costs and a decline in professional fees.
Efficiency
The Company’s efficiency ratio is a non-US GAAP
measurement and is defined as noninterest expense as a percentage of fully
tax-equivalent net interest income plus noninterest income. The effects of provision
expense are excluded from the efficiency ratio. Management believes the
efficiency ratio provides investors with important information regarding
operational efficiency and operating performance. Management continues to place
emphasis on managing its balance sheet mix and interest rate sensitivity as
well as developing more innovative ways to generate noninterest revenue.
Comparing the three and six months ended June 30, 2026 to the same periods in
2025, the Company has benefited from an increase in average earning assets,
primarily from a composition shift to higher-yielding loans. However, a
composition shift to higher-costing time deposits combined with an $817 market
discount on purchased loans from 2025 contributed to
decreases in the net interest margin during the three and six months ended June
30, 2026 compared to the same periods in 2025. Although the net interest margin
contracted, the additional growth in average earning assets more than offset
the margin decreases resulting in a 5.9% and 9.4% increase in net interest
income during the second quarter and first half of 2026. The growth in net
interest income was further enhanced by the strong growth in noninterest income
during the second quarter of 2026, bringing 2026’s year-to-date noninterest
revenue more in line with the prior year-to-date. The quarterly increase was
largely impacted by the unrealized gains on equity securities, as well as
higher earnings from debit and credit interchange and BOLI insurance, which
helped to counter the negative effects from lower electronic refund check and
deposit fees from an expired tax processing agreement. And while noninterest
expense increased during 2026, the pace of growth was slowed during the second
quarter with the $544 refund from a vendor billing error that resulted in a
62.4% and 32.7% decrease in data processing expense during the three and six months
ended June 30, 2026. This caused total noninterest expense to increase just
1.8% during the second quarter of 2026 compared to a 4.5% increase during the
linked first quarter of 2026. Based on the net increase in revenue sources and
slower cost growth in overhead during the quarter, the Company’s efficiency ratio
decreased (improved) to 60.08% during the three months ended June 30, 2026,
compared to 63.09% during the three months ended June 30, 2025. The Company’s
year-to-date efficiency ratio also decreased (improved) to 60.89% during the six
months ended June 30, 2026, compared to 63.51% during the six months ended June
30, 2025.
Provision
for income taxes
The Company’s income tax provision decreased $319, or 32.7%,
during the three months ended June 30, 2026, and decreased $509, or 24.0%,
during the six months ended June 30, 2026, compared to the same periods in
2025. During the second quarter of 2026, operating income decreased 30.9% and
the associated effective tax rate decreased from 18.9% in 2025 to 18.3% in 2026.
During the first half of 2026, operating income decreased 17.7% and the
associated effective tax rate decreased from 19.8% in 2025 to 18.3% in 2026. The
effective rate decreases during both the quarterly and year-to-date periods of
2026 were primarily from higher tax-exempt earnings.
Capital Resources
Federal
regulators have classified and defined capital into the following components:
(i) Tier 1 capital, which includes tangible shareholders’ equity for common
stock, qualifying preferred stock and certain qualifying hybrid instruments,
and (ii) Tier 2 capital, which includes a portion of the allowance for credit
losses, certain qualifying long-term debt, preferred stock and hybrid
instruments which do not qualify as Tier 1 capital.
42
The
Community Bank Leverage Ratio (CBLR) framework provides simplified capital
requirements for qualifying community banking organizations (QCBOs), including
banks and holding companies. To be eligible for the CBLR framework, a QCBO must
meet the following criteria:
• Have less than $10 billion in
total consolidated assets,
• Hold limited amounts of certain
trading assets and liabilities,
• Maintain limited off-balance
sheet exposure, and
• Achieve a leverage ratio
greater than 9.0%.
The
federal banking agencies adopted a final rule that modified the CBLR framework
effective July 1, 2026. Key provisions included a decrease in the CBLR
requirement from 9.0% to 8.0%, extension of the grace period to meet one or
more CBLR qualifying requirements from two consecutive quarters to four
consecutive quarters, as long as the leverage ratio stays above 7.0%, and a cap on the extended grace period to eight quarters within a five-year period. A
QCBO failing to satisfy these requirements must comply with the existing Basel
III capital requirements. The Bank opted into the CBLR, and, therefore, is
not required to comply with the Basel III capital requirements. As of June 30,
2026, the Bank’s CBLR was 9.73%.
Cash
dividends paid by the Company were $2,262 during the first half of 2026. The
year-to-date dividends paid totaled $0.48 per share.
Liquidity
Liquidity relates to the Company's ability to meet the
cash demands and credit needs of its customers in the short and long-term and
is provided by the ability to readily convert assets to cash and raise funds in
the marketplace. The Company manages funding and liquidity based on
point-in-time metrics as well as forward-looking projections, which incorporate
different sources and uses of funds under base and stress scenarios. Liquidity
risk is monitored and managed by the Bank’s Asset Liability Committee using a
series of policy limits and key risk indicators, which are established to
ensure risks are managed within the Company’s risk tolerance. The Company
maintains a contingency funding plan that provides for liquidity stress
testing, which assesses the liquidity needs under varying market conditions,
time horizons and other events. The stress testing provides for ongoing
monitoring of unused borrowing capacity and available sources of contingent
liquidity to prepare for unexpected liquidity needs and to cover unanticipated
events that could affect liquidity.
Total cash and cash equivalents, HTM securities
maturing within one year, and AFS securities, which totaled $328,951,
represented 19.8% of total assets at June 30, 2026 compared to $300,436 and 19.0%
of total assets at December 31, 2025. The increase in liquid funds came
primarily from the $32,187 increase in cash and cash equivalents, which was
related to the growth in total deposits. From year-end 2025, total deposits
increased $78,761, or 5.9%, of which a portion was utilized to fund loan growth
of $50,096.
In addition to the on-balance sheet liquidity
discussed above, the Bank has established multiple sources of funding to
further enhance the Bank’s ability to meet liquidity demands. The Bank has
pledged collateral to the FHLB and the FRB to establish committed borrowing
lines. At June 30, 2026, the Bank could borrow an additional $170,848 from the
FHLB and the borrowing line with the FRB had availability of $35,665. For each
of these sources, the Bank has established an internal limit of 85% of our
borrowing capacity. In addition to the committed borrowing lines, the Bank has
access to several wholesale funding sources, such as, brokered CDs, a $25
million federal funds purchase limit with two correspondent banks, and the
ability to bid on available funds from select deposit placement services. The
Bank has established limits for each respective funding source and a collective
limit on all wholesale funding sources. The Bank’s internal limit on brokered
CDs is 10% of total assets. At June 30, 2026, the amount of brokered CDs
outstanding was 2.78% of total assets, as compared to 3.92% at December 31,
2025. At June 30, 2026, the Bank had utilized 36.17% of our FHLB capacity, a
decrease from 37.62% at December 31, 2025. The collective internal limit on all
wholesale funding sources is 40% of total assets. At June 30, 2026, the Bank’s
total wholesale funding sources represented 10.52% of total assets, a decrease
from 11.89% at December 31, 2025. Based on the collective internal wholesale
funding limit, the Bank had the capacity to borrow an additional $485 million
in wholesale funds and the available funding from the respective wholesale
funding sources exceeded this amount, which provides the flexibility to utilize
one source more than another due to pricing or availability.
43
As part of performing liquidity stress tests, the Bank
monitors and evaluates the exposure to uninsured deposits. Of the Company’s $1,408,428
in total deposit balances at June 30, 2026, only 36.7%, or $517,318, were
deemed uninsured as per the $250 FDIC threshold. A portion of these deposits
are on behalf of public entity customers, which require the Bank to pledge
securities or FHLB letters of credit to cover the amount of the deposit balance
that is deemed uninsured. To the extent these deposits left the Bank, the level
of unpledged securities and the borrowing capacity at the FHLB would increase
or could be utilized to fund the deposit outflow. The sum of current on-balance
sheet liquidity and available wholesale funding sources exceeded the balance of
uninsured deposits at June 30, 2026. Included in on-balance sheet liquidity are
AFS securities in an unrealized loss position. Although management does not
intend to sell the securities before the recovery of its cost basis, they are a
contingent resource from a liquidity perspective.
As our liquidity position dictates, the preceding
funding sources may be utilized to supplement our liquidity position. If the
utilization of wholesale funding increases to fund asset growth or for
liquidity management purposes, the net interest margin may be negatively
impacted due to the higher relative cost of these sources as compared to core
deposits. For further cash flow information, see the condensed consolidated
statement of cash flows. Management does not rely on any single source of
liquidity and monitors the level of liquidity based on many factors affecting
the Company’s financial condition.
Off-Balance Sheet Arrangements
As discussed in Note 5 – Financial Instruments with
Off-Balance Sheet Risk, the Company engages in certain off-balance sheet
credit-related activities, including commitments to extend credit and standby
letters of credit, which could require the Company to make cash payments in the
event that specified future events occur. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. Standby
letters of credit are conditional commitments to guarantee the performance of a
customer to a third party. While these commitments are necessary to meet the
financing needs of the Company’s customers, many of these commitments are
expected to expire without being drawn upon. Therefore, the total amount of
commitments does not necessarily represent future cash requirements.
Critical Accounting
Estimates
The preparation of financial statements and related
disclosures requires management to use judgment and make estimates. The Company evaluates such estimates on an
ongoing basis. By their nature, these
judgments are subject to uncertainty. We
base our estimates on historical experience, current trends and other factors
that we believe to be relevant and reasonable under the circumstances at the
time the estimate was made.
We believe our estimates, assumptions, and judgments
are reasonable in that they were based on information available when the
estimates, assumptions and judgments were made.
However, because future events and their effects cannot be determined
with certainty, actual results could differ materially from those implied by
our assumptions and estimates.
The Company believes the determination of the ACL
involves a higher degree of judgment and complexity than its other significant
accounting policies. The ACL is calculated with the objective of maintaining a
reserve level believed by management to be sufficient to absorb estimated
credit losses over the life of an asset or off-balance sheet credit exposure.
Management’s determination of the adequacy of the ACL is based on periodic
evaluations of past events, including historical credit loss experience on financial
assets with similar risk characteristics, current conditions, and reasonable
and supportable forecasts that affect the collectability of the remaining cash
flows over the contractual term of the financial assets. However, this
evaluation has subjective components requiring material estimates, including
expected default probabilities, the expected loss given default, the amounts
and timing of expected future cash flows on individually evaluated collateral
dependent loans, and estimated losses based on historical loss experience and
forecasted economic conditions. All of these factors may be susceptible to
significant change. To the extent that actual results differ from management
estimates, additional provisions for credit losses may be required that would
adversely impact earnings in future periods. Refer to “Allowance for Credit
Losses” and “Provision for Credit Losses” sections within this Management’s
Discussion and Analysis for additional discussion.
44
Concentration of
Credit Risk
The Company maintains a diversified credit portfolio,
with commercial real estate loans currently comprising the most significant
portion. Credit risk is primarily subject to loans made to businesses and
individuals in southeastern Ohio and western West Virginia. Management believes
this risk to be general in nature, as there are no material concentrations of
loans to any industry or consumer group. To the extent possible, the Company
diversifies its loan portfolio to limit credit risk by avoiding industry
concentrations.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
With the participation of the Chief Executive Officer
(the principal executive officer) and the Senior Vice President and Chief
Financial Officer (the principal financial officer and principal accounting
officer) of Ohio Valley, Ohio Valley’s management has evaluated the
effectiveness of Ohio Valley’s disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2026.
Based on that evaluation, Ohio Valley’s Chief Executive Officer and Senior Vice
President and Chief Financial Officer have concluded that Ohio Valley’s
disclosure controls and procedures were effective as of June 30, 2026.
Changes in Internal Control over Financial Reporting
There was no change in Ohio Valley’s internal control
over financial reporting (as defined in Rule 13a‑15(f) under the Exchange Act)
that occurred during Ohio Valley’s fiscal quarter ended June 30, 2026, that has
materially affected, or is reasonably likely to materially affect, Ohio
Valley’s internal control over financial reporting.
PART II -
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various claims and legal
actions, as both plaintiff and defendant, arising in the ordinary course of
business. The Company does not believe that any such proceedings, individually
and in the aggregate, will have a material adverse effect on its business,
financial position, results of operations or cash flows.
ITEM 1A. RISK
FACTORS
An
investment in our common shares involves risks. Before making an investment
decision, you should carefully consider all of the information in this
Quarterly Report, including in the section entitled “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and the
Condensed Consolidated Financial Statements and related notes. In addition, you
should carefully consider the risks and uncertainties described in the section
entitled “Risk Factors” in our 2025 Annual Report. If any of the identified
risks are realized, our business, financial condition, operating results and
prospects could be materially and adversely affected. In that case, the trading
price of our common shares may decline. In addition, other risks of which we
are currently unaware, or which we do not currently view as material, could
have a material adverse effect on our business, financial condition, operating
results and prospects. As of the date of this Quarterly Report, there have been
no material changes to the risk factors previously disclosed under the section
entitled "Risk Factors" in Part I, Item 1A of our 2025 Annual Report.
45
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS
Ohio Valley did not sell any unregistered equity
securities during the three months ended June 30, 2026.
During
the three months ended June 30, 2026, neither Ohio Valley nor any affiliated
purchaser purchased any of Ohio Valley’s common shares.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
Not
applicable.
ITEM 4. MINE
SAFETY DISCLOSURES
Not
applicable.
ITEM 5. OTHER
INFORMATION
During the three months
ended June 30, 2026, no director or officer of the Company adopted terminated
46
ITEM 6. EXHIBITS
(a) Exhibits:
| Exhibit Number |
Exhibit Description
|
|
| 3.1 | Amended Articles of Incorporation of Ohio Valley (reflects amendments through April 7, 1999) [for SEC reporting compliance only - - not filed with the Ohio Secretary of State]: Incorporated herein by reference to Exhibit 3(a) to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2007. | |
| 3.2 | Amended and Restated Code of Regulations of Ohio Valley: Incorporated herein by reference to Exhibit 3.1 to Ohio Valley’s Current Report on Form 8-K filed on May 15, 2026. | |
| 4.1 | Agreement to furnish instruments and agreements defining rights of holders of long-term debt: Filed herewith. | |
| 31.1 | Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer): Filed herewith. | |
| 31.2 | Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer): Filed herewith. | |
| 32 | Section 1350 Certifications (Principal Executive Officer and Principal Accounting Officer): Furnished herewith. | |
| 101.INS # | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
| 101.SCH # | XBRL Taxonomy Extension Schema: Filed herewith. # | |
| 101.CAL # | XBRL Taxonomy Extension Calculation Linkbase: Filed herewith. # | |
| 101.DEF # | XBRL Taxonomy Extension Definition Linkbase: Filed herewith. # | |
| 101.LAB # | XBRL Taxonomy Extension Label Linkbase: Filed herewith. # | |
| 101.PRE # | XBRL Taxonomy Extension Presentation Linkbase: Filed herewith. # | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) Filed herewith # |
|
# Attached as Exhibit 101 are the following documents formatted in XBRL (eXtensive Business Reporting Language): (i) Unaudited Consolidated Balance Sheets; (ii) Unaudited Consolidated Statements of Income; (iii) Unaudited Consolidated Statements of Comprehensive Income; (iv) Unaudited Consolidated Statements of Changes in Shareholders’ Equity; (v) Unaudited Condensed Consolidated Statements of Cash Flows; and (vi) Notes to the Unaudited Consolidated Financial Statements.
|
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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OHIO VALLEY BANC CORP.
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Date:
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August 13, 2026
|
By:
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/s/Larry E. Miller, II
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Larry E. Miller, II
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Chief Executive Officer
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Date:
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August 13, 2026
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By:
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/s/Scott W. Shockey
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Scott W. Shockey
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Senior Vice President and Chief Financial Officer
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